Transnation Management Case Study: Phillips versus Matsushita

Philips is a Dutch technology company headquartered in Amsterdam, the Netherlands, that specializes in lighting, healthcare, and electronics. Matsushita (currently known as Panasonic) is a Japanese electronics corporation headquartered in Osaka, Japan. This paper evaluates Christopher Bartlett’s case analysis of the two corporations’ strategic struggle by doing a summary of their past, domination in the electronics domain, and recent developments. As a result, it is divided into three major sections: presentation, body, and conclusion. The introduction lays the groundwork for the paper while the body tackles core issues addressed in the case study. The conclusion summarizes the paper highlighting key lessons.

The dominance of Philips _x0096_ Core Competencies

In 1892, Philips N.V. was founded in Eindhoven, Netherlands as a family business ran by Gerard Philips and his son with particular focus on the manufacture of electric light bulbs (Bartlett 2009, p.311). The venture almost failed but with the entry of Anton, an excellent manager, the small firm grew to be the third largest bulb manufacturer in Europe by 1900.

Various competencies developed by the company led to its success as an electronics manufacturer over the post-World War II era. One of these was technological competence enabled the firm to focus on innovative industrial research and product development. As a result, Physics and Chemistry labs were developed leading to significant innovations such as the Tungsten filament bulb, a product that spiraled commercial success in the company. Further, the leadership adopted a one-product approach where Gerard as an engineer explored different methods to enhance their light bulbs. In addition, the company formulated and enforced a policy that ensured new production technology was implemented whenever required thereby replacing outdated equipment.

A second competency was their corporate strategy (Mayers and Brenner 1995, p.4). The company adopted a decentralised organisational design where management built on the strengths that arose from working with National Organizations (NOs) working autonomously in disparate locations. The adoption of the strategy led to the evolution of Philips from a highly centralised organisation to one that was decentralised. Its headquarters in Eindhoven, Netherlands were linked to the various national organisations without integrating across them thereby enabling the National Organizations to assess different markets and respond appropriately under the leadership of a technical and commercial manager. Such a strategy that involved working with independent marketing companies in different locations of the world created a competitive advantage for the company as it promoted geographical expansion. Since the NOs each dealt with their own demographics with unique needs, they spearheaded product growth leading to eventual product diversification and resulting to an eventual broadening of its product line to include x-ray tubes, radios, vacuum tubes etc.

Third, the model that had been initially developed by the founder Gerard and the sales manager, Anton, where competition was encouraged between the technical and commercial departments within the firm was soon replicated in the decentralised organisation structure. As a result, each of the National Organizations (NOs) benefited from cooperation between the technical manager and commercial manager. Technical managers assessed the technical aspects of the products developed while commercial managers spearheaded the entry of the products into the market. In addition, due to the World War II going on at the time, the autonomous National Organizations had to learn to be self-sufficient with ties to the parent country severed. As such, they developed their capacities to enable them to respond to country specific needs which eventually worked in favor of Philips as the NOs spearheaded product expasion in their own countries leading to diversification of products.

Thus, it can be argued that there were three main competencies that sprung Philips to its leadership position in the post war era. First, its leadership adopted a dual system where there was cooperation between the technical and commercial departments within the organisation. Secondly, the company was able to adopt a decentralised sales structure where it partnered with autonomous national organizations in 14 different locations of the world that were able to respond to market specific needs in each of their countries. Third, innovation and technological competence was still one of its core strengths leading to enhanced production techniques and innovative products.

The fall of Philips _x0096_ Core Incompetencies

In the 1960s, with the creation of the European Common Market, a drastic change occurred leading to erosion of prevalent trade barriers. As a result, the independent country subsidies rationale that had worked so well for Philips over the years became diluted. Most of Philips_x0092_ competitors began moving their production plants to low-wage countries in Asia and South America thereby gaining more competitive advantages over the company.

Phillips was eventually overtaken by Matsushita during this World War II post war era due to several related incompetencies in the company. One of these incompetencies was a clear lack of structure in the organisation both in terms of marketing and manufacturing. Bartlett (2009, p.318) points out that the current CEO, Gerard Kleisterlee at one point sighed that Philips never quite had a strategy throughout its long tenure. Pellenbarg and Wever (2011, p.186) reiterate Bartlett as they point out that the period from 1960s, soon after competitors such as Matsushita displaced Philips, the company underwent massive restructuring under different CEOs all who focused on different aspects without having an overall strategy that guided their actions.

A second weakness was the looming power struggle between Product Divisions (PDs) based in Eindhoven and National Organizations (NOs) in disparate locations in the world. In essence, it had been determined that the NOs would control the financial, legal and administrative matters in their own countries while the PDs would be responsible for evolvement, production and global distribution. However, factors such as distance and the control of assets by NOs foiled this relationship. PDs on the one hand found it difficult to get their voices heard since the NOs had all the power and influence. An example of the power struggle between the two was seen when the parent Phillips company ordered its American subsidiary, North American Phillips Cooperation (NACP) to sell the V2000 video cassette format but instead, the subsidiary outsourced the VHS format contrary to the direct orders. Van der Klugt, CEO of Phillips from 1987 to 1990 eventually bought the subsidiary to avoid such a replay.

A third weakness seen was that the decentralised system that had worked well for the company earlier eventually led to the company releasing its innovations late in the market. For instance, despite having come up with a highly innovative V2000 video cassette format that was technically superior to Sony_x0092_s Betamax and Matsushita_x0092_s VHS, the company released it late in the market when VHS had already captured the market appeal. Further, as the sales dwindled in the company, the company restructured leading to closing down of its inefficient plants. The downside of these actions was a loss of important manpower, particularly those who worked in Research and Development. As a result, some of the innovations were not able to take off owing to the reduced technical human resource. For instance, its HDTV failed due to the 37% cut in technical personnel.

Therefore, due to the above incompetencies, Phillips was eventually displaced by Matsushita as the leader in consumer electronics production. At the time when they were displaced, Matsushita had better economies of scale in addition to having a capacity to commercialize their products much faster thereby easily winning the overall market appeal. Phillips incompetence in having power struggles between the different PDs and NOs resulted in an inability to respond to the market needs in a fast way. As such, their operations led them to be displaced as the leading consumer electronics brand.

The reputation of Philips

From the onset of the company, it has maintained a reputation in embracing innovation in its product growth. Its vision to make the world healthier and more sustainable through innovation has seen it spearhead the lighting, electronics and healthcare industries. However, this three tier focus was not in its original brand strategy, instead, over time, the company has re-affirmed its brand promise to ensure that its innovations are centered around individuals, improving their lives. Rsm.nl (2015) highlights that the company has maintained an eight-year reign as the most reputable Dutch company in aspects such as innovation, products and services, workplace, and governance.

History of Matsushita

Matsushita, currently known as Panasonic, was founded in 1918 as an electrical socket manufacturer. Over time, the company grew into a multi-product electronic company with diverse products. Currently, the company offers a wide array of products in domains such as appliances, eco-solutions, connected solutions and automotive solutions (Panasonic.com, 2017)

Matsushita _x0096_ Core Competencies

Various competencies are argued to have seen the company rise to displace Philips as the leader in consumer electronic production. One of these was the adoption of a highly centralised structure that was inflexible and slow in adopting change. The company was seen to focus on a centralised organisation structure where despite the setting up plants in different geographical regions, the Japanese headquarters still maintained tight control over the different plants through maintaining short communication lines with expatriates in the various subsidiaries.

Secondly, Matsushita adopted a divisional structure which enabled it to develop distinctive competencies Shimotani (1995, p.54). As Shimotani notes, Matsushita was structured around the Japanese Keiretsu, a system that vertically linked large corporations and a number of smaller firms through close long-term business relationships. As such, the company was organised into production, financial and distribution divisions which enabled it to respond to market changes more aptly especially during the post-war period.

Thirdly, the company was able to take advantage of economies of scale arising from its alignment of its supply chain with low wage countries. As Jiang and Hansen (2003, p.185) highlight, the company transferred most of its tasks to China which is well known for inexpensive labour and production resources. This, coupled with innovative technology enabled the company to displace Phillips, which at the time, had its production zones in high wage countries such as United States and England. This finding reiterates Ma (1999, p.259) who highlighted that companies would gain competitive edge either through competence is business operation and access to distribution or supply. Matsushita was able to gain advantage through its effective supply chain.

Finally, the company was seen to adopt a marketing strategy that enabled it to outperform its competitors. Chandler (2005, p.299) highlights that the proof of the superiority of their strategy was seen in the late 1970s with their successful marketing of the VHS that eventually drove Sony_x0092_s Betamax out of the market. As Chandler notes, the company not only used its own resources to commercialize the product, it also partnered with a wide array of organisations such as JVC, Sanyo, Hitachi and Sharp to market its product further. Their successful marketing strategies enabled the company to respond to market needs in quickly and efficiently. Genestre, Herbig and Shao (1995, p.16) reiterate Chandler_x0092_s findings by postulating that in general, Japanese marketers are the world_x0092_s premier marketers owing to their unparalleled marketing of Japanese manufactured automobiles that have global reach.

Matsushita _x0096_ Core Incompetencies

Despite its success as an electronics manufacturer, Matsushita suffered from various incompetencies that eventually led it to lose track of their performance. One of its incompetencies stemmed from its highly centralised structure that had made it possible for the firm to maintain a firm hold on its subsidiaries. Most engineers in the subsidiary branches felt that the parent headquarters held too firm a grip thereby leading to lack of innovation as their actions were controlled most of the time. Further, the highly centralised system meant that there was a slow change process leading to an environment that constrained innovation.

A second incompetence was dependence on competitors for technological innovation. As different authors note, the company_x0092_s leadership had acknowledged the lack of an environment that could foster innovation in the organisation due to the strict centralised system in place. As a result, they opted to restructure the company and outsource innovation from other companies. However, the collapse of the Japanese economy later in the 1980s eventually foiled the strategy. Unlike Phillips that from its onset was an innovative company with its own Research and Development departments, Matsushita on the other hand, thrived from aligning its supply chain to low-wage production zones and intensive marketing strategies. As a result, it depended on the innovation from other competitors, a strategy that was unable to last for long.

Thirdly, most of the staff in external overseas companies were disgruntled during the 1980s and 1990s leading to low motivation in carrying out their tasks. As different authors note, the highly centralised system deployed by Matsushita meant that subsidiaries had to depend on the instructions that were directed from the parent headquarters. As a result, they were not given room to innovate and come up with solutions that could meet their demographic needs. Further, the company was unable to manage change after the depression that was experienced when the Japanese economy fell. This resulted in high stress levels that further aggravated the poor performance in the company.

Finally, the _x0093_destruction and creation program_x0094_ announced by Kunio Nkamura in 2004 eventually led to further chaos. Nkamura disbanded the product division structure that had been the basic building structure for the company for over seventy years. Though his intentions were to promote innovation, they however did not bear any fruits as the company spiraled further into losses (Hill and Jones 2009, p.167).

The reputation of Matsushita

Matsushita have maintained a strong reputation for innovative products consisting of consumer electronics that are both high quality and last long. The company is also well known for producing a large selection of diverse products thereby earning a considerable share of the market.

Changes made by each company to date

Philips

As a result of the dwindling sales, the company has made some significant changes to date in an effort to improve its revenue growth. The first objective of the company was to globalize the expansion of its products while increasing control over its subsidiaries and improving its production facilities. To implement the objective, the company reduced the number of product divisions to enable more focused production. Further, the relationship between the managers in the National Organizations (NOs) and Product Divisions (PDs) was also focused on in order to ensure an evening out of the problems that often characterised the relationship in an attempt to both ensure production increased while goods flowed easily into various markets.

A second move that the company had to make was to transfer most of its production operations to low wage countries in order to improve their competitive edge against their competitors. Such a move was subsequently followed by outsourcing of most innovative functions to Asian counterparts. Further, the company allocated more budget share to marketing and advertising leading to improved sales performance from the additional market penetration.

Third, the company as well focused on improving their economies of scale. Its decentralised sales approach enabled it to reach further diversified markets. However, other competitors such as the Japanese have been able to dominate the market share leading to further rethinking. The move from a decentralised culture to a more centralised one has been the main difficulty for the company given its previous global thinking.

Fourth, the company in 2004 launched a unique brand promise dubbed sense and simplicity to sell the company as being market driven and one that provides products that are not only designed around the individual, but also advanced and easy to experience. Further, a review of its mission to incorporate a sense of innovation has been marked improvement. The result of such actions has been an improvement of profits. In addition, the evolution of the company to focus on three key sectors namely, healthcare, lighting and consumer lifestyle have led to much renewed sense of focus in the company.

Matsushita

One of the objectives implemented by Matsushita involved the increase of initiatives for their offshore and overseas subsidiary plants that were both entrepreneurial and innovative. This was implemented by the CEO Toshihoto Yamashita who launched the operation dubbed _x0093_operation localization_x0094_. Lasserre (2012, p.74) notes that the objective in setting up the operation was to ensure that personnel, capital, and technology would be localized. Further, the move saw local nationals being employed in key positions, unlike the previous period where expatriates occupied the given positions. Local suppliers were also contracted unlike the previous situation.

Secondly, the company maintained its divisional structure which enabled it to create business environments that were small and that were able to provide growth and flexibility of operations. The impact of adopting such a structure was that it increased competition among the divisions thereby leading to improved products. Additionally, the company had an objective to cut costs arising from the increased number of liabilities. It implemented the same through restructuring the organisation by Yoichi Morishita who emphasized on operational flexibility by cutting the number of staff at the headquarters and decentralising responsibility. The impact was an improvement in the profit margins, a decrease in the margin of consumer electronics and a shift in digital electronics.

The third change made by the company involved the disbanding of the divisional structure that had lasted over seventy years by the then CEO, Kunio Nkamura. Though the objective was aimed at the integration of one-product divisions into multi-product divisions through the destruction and creation program, it however led to sharp losses that led to challenges that have crippled the business to date.

Finally, the company was renamed Panasonic Corporation in 2008 and its brands established under the brand. With a new brand, the objective is to sell the company differently to the world thereby creating a different market appeal.

Both Phillips and Matsushita have undergone numerous restructuring involving laying off of staff, appointment of different leaders, creation and enforcement of different corporate strategies, etc. However, the changes have been very difficult for the companies given that a change in organisational structure requires sufficient time appropriation to enable it to work as deemed. Matsushita has been experiencing challenges in integrating its managers into senior management levels especially in subsidiary countries. As such, a challenge in creating and enforcing a cultural change in the company is a huge problem.

Recommendations to the management

Philips _x0096_ Gerard Kleisterlee

Gerard Kleisterlee is the current CEO of Phillips. His goals are to market Phillips as a company that deals in more than consumer electronics. He points out that their vision of using innovation to make the world more sustainable and healthier is the focus of the company. Owing to his different strengths and weaknesses, the following recommendations are proposed.

From the onset, Philips was seen as an innovative company that focused on product development and industrial research. Though the company maintained its innovativeness through its dual leadership system that comprised of technical and commercial departments, over time, the company failed to successfully introduce the various products into the market thereby being displaced by Matsushita that was able to capitalize on marketing aspects. Thus it would be recommended to Gerard to focus on ensuring their innovations are marketed as early as possible to ensure they capture their market appeal. It is also important that he ensures that innovation remains a core aspect of the company_x0092_s products as it led to success at the onset.

Second, it is recommended that the organisation foster a culture of unity especially among the managers at the PDs and the NOs. Studies have shown that the major cause of failure in the company stemmed from poor coherence between the managers at production (PDs) and those at the autonomous subsidiaries (NOs). As a result, orders issued from the headquarters went unheeded at the subsidiary level. Though at the subsidiary level, such actions appear to be well meaning, at the organisational level, it paints a picture of defiance which has an overall negative portrayal of the company. Thus, ensuring that all parts of the organisation are coherent is recommended for Philips.

Third, it is recommended that Phillips maintain strong ties with different technological partners from around the world in order to enhance its outsourcing efforts. Studies revealed that its competitors were able to gain competitive advantage from outsourcing their functions across the globe in an effort to reduce their production costs. Further, through licensing its products to third parties, the company is able to gain competitive advantages through both reduced production costs and improved marketing efforts.

Matsushita

Eumio Ohtsubo served as the Executive advisor of Panasonic Corporation from 2013. He had been tasked with marketing Panasonic as diverse electronic company that focuses on innovative products globally. In his efforts to move the company further, the following recommendations are issued.

The first recommendation would be to incorporate a culture of innovation across its subsidiaries in an effort to ensure that the centralised system that makes the headquarters to be the source of innovation is no longer prevalent. This not only increases innovation for different demographics, it also improves the employee motivation levels.

Secondly, it is also recommended that the company adopt effective change management practices that ensure that change is effectively managed and any reactions to it handled appropriately. It was seen that the drastic change brought about by the creation and destruction program leading to disbanding of the division structure was a move that was not well thought out since instead of leading to profits, it led to losses. As such, it is recommended that Eumio adopt a change management process that would not only ensure that the change is effected appropriately, it also is well thought out and necessary.

Conclusion

The case study has revealed fundamental insights regarding international and global management particularly in terms of challenges that the management in these nations go through. Philips case highlighted that despite there being numerous benefits arising from working with disparate subsidiaries that are autonomous in their own right in terms of market share and product diversification, challenges can however arise with the given subsidiaries leading to inappropriate behavior. The Matsushita case highlighted that a strategy that is pegged on copying and using competitor innovations to market their own products does not last long. Instead, focusing on building innovation is a sure way to lead to diversified products.

See the appendix for the different statistics on key financials for the two companies where their revenues, stock prices, and rank history are displayed.

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References

Bartlett, Christopher A., Philips Versus Matsushita: The Competitive Battle Continues, 2009. HBS Case No. 910-410; Harvard Business School, Harvard Business School Research Paper Series. [Online] Available at  https://ssrn.com/abstract=1553814 [Accessed Sept.8, 2017]

Chandler, A., 2005. Shaping the Industrial Century. London: Harvard University Press.

Genestre, A., Herbig, P., and Shao, A., 1995. What does marketing really mean to the Japanese? Marketing Intelligence and Planning, 13(9), pp.16-27.

Hill, C., and Jones, G., 2009. Essentials of strategic management. Mason: Cengage Learning.

Jiang, B., and Hansen, J., 2003. Matsushita realigns its supply chain in China. Supply Chain Management: An International Journal, 8(3), pp.185-189.

Lasserre, P., 2017. Global Strategic Management. [S.I.]: Palgrave.

Ma, H., 1999. Creation and preemption for competitive advantage. Management Decision, 37(3), pp. 259-267.

Mayers, A. and Brenner, Y., 1995. _x0093_Make or buy_x0094_: the potential subversion of corporate strategy _x0096_ the case of Philips. International Journal of Social Economics, 22(4), pp.4-11.

Shimotani, M., 1995. The Formation of Distribution Keiretsu: The Case of Matsushita Electric. Business History, 37(2), pp.54-69.

Panasonic, 2017. Business Segments - Corporate Profile - About Us - Panasonic Global. Panasonic.com. [Online] Available at http://www.panasonic.com/global/corporate/profile/segments.html [Accessed Sept.8, 2017].

Pellenbarg, P. and Wever, E., 2011. International business geography. London: Routledge.

Rotterdam School of Management, 2015. RSM study reveals Philips_x0092_ 8 year reign as most reputable Dutch company. [Online] Available at https://www.rsm.nl/about-rsm/news/detail/3471-rsm-study-reveals-philips-8-year-reign-as-most-reputable-dutch-company/ [Accessed Sept.8, 2017].

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Appendix

Royal Phillips: Global 500 rank history

(Source: fortune.com, 2017)

Royal Phillips: key financials (last financial year)

(Source: fortune.com, 2017)

Royal Phillips: Stock Quote

(Source: fortune.com, 2017)

Panasonic: Global 500 rank history

(Source: fortune.com, 2017)

Panasonic: key financials (last financial year)

(Source: fortune.com, 2017)

Panasonic: Stock Quote

(Source: fortune.com, 2017)