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How did Philips become the leading consumer electronic company in the post- war era.. and how did these organizational capabilities become impediments in the 1970s?

1. In the case “Philips versus Matsushita: The Competitive Battle Continues” by Christopher Bartlett, Philips was able to become a leading consumer electronic company in the post-war era primarily due to its autonomous business model. As the case study stated, many of Philips assets and resources were moved away from their home country due to the war, even members of top management. The company already had a decentralized sales organization with independent marketing companies in various locations around the world.  These national organizations (NOs) created a competitive advantage for Philips because they allowed Philips to “sense and respond” to local demands and preferences in the countries they served. Because the NOs were working with their local demographics and responding to their needs, much of the product development was influenced by the NOs even though there were fourteen product divisions (PDs) in Eindhoven, Holland. This allowed Philips to diversify its product offerings and satisfy the various, local demands of their customers. The NOs played an important role in Philip’s success during the post-war era, and they had a lot of power and influence over the direction of the company. Furthermore, Philips viewed research as an important, vital part of their business so they kept up to date with new technologies. The situation changed after the war and many of the advantages that were advantageous to Philips became impediments in the 1970s. The liberalization of trade coupled with lower shipping costs during the 1950s and 1960s lessened the rationale for the independent NOs. Many competing firms, such as Matsushita, were able to take advantage of the situation and build strong export businesses, taking market share away from Philips. Philips had a cost disadvantage because production was not concentrated, and products were highly differentiated in each country the NOs serviced. However, due to the history of the NOs power and independence, it proved difficult to “tilt the matrix towards the PDs” when Philips tried to attempt reorganization. By 1987, Philips had lost its long-held leadership position in consumer electronics to Matsushita. There are several things Philips could have done to combat the rising competition from competitors like Matsushita. First of all, Philips needed to change its international business strategy. A localization strategy was beneficial to Philips in the pre-war era due to the trade barriers and high shipping costs. However, when trade became more liberalized, Philips needed to move from a localization strategy to a more global standardization strategy. Like Matsushita, Philips could have done a better job in taking advantage of location economies

to lower costs such as setting up manufacturing in low-cost countries and moving product research and development to low corporate tax countries. This way, the products could be manufactured at a lower cost as well as be sold with lower tax expenses. A disadvantage of a global standardization strategy is the lack of customization for its products because high customization comes with high costs. To mitigate this, Philips could continue to allow NOs to influence product development, but have product developers create more standardized products that could be sold in most markets. The decision of which products to make should be determined by the profit and cost advantages of the products themselves rather than it resting on the NOs or PDs. Similar to Matsushita, new product development could be setup as a competition for resources between NOs where the most cost effective yet high sales potential products would be developed. Adding to utilizing local economies, Philips could have created a global web in order to maximize the value created from specific locations while minimizing the costs related to the value creation. Philips eventually took this route in the 1980s, but the damage had already been done. Philips was slow to change its business strategy and as a result, they lost their competitive advantage. If Philips had done a better job adopting a global standardization strategy, they may have not lost as much market share to its competitors. 

2. Phillips functioned in many strategic ways to become the leading consumer electronic company in the post-war era continuing to the 1970’s.  In anticipation of the impending war, Phillips transferred its overseas assets to two trusts, British Phillips and the North American Phillips Corporation. In addition, Phillips moved most of its research laboratories to Redhill in Surrey, England and its top management to the United States. According to the article, “supported by the assets and resources transferred abroad, and isolated from their parent, the individual country organizations became more independent during the war.” This independence is one of many ingredients in the success of Phillips during the post-war era. German bombing to Phillips’ industrial plants in the Netherlands gave management the opportunity to build the postwar organization of Phillips on the strengths of national organizations. And this increased self-sufficiency allowed the company to be more adept at responding to  “country-specific market conditions” that is another factor in Phillips success in the postwar era. Consumer preferences and economic conditions varied, which meant in some countries, rich, furniture-cased TV’s were the norm while in other countries sleek modern models dominated the market. Understanding this difference in their customer bases Phillips was able to tailor it’s custom offering to each customer segment, which is a great way to pivot in the marketplace and make sure they don’t lose their customer base. By modifying, tailoring, and specializing its product offering to each country Phillips was able to become as

successful as it was in the postwar era. In good time this unique “responsiveness extended beyond adaptive marketing.” Phillips continued to develop their products with their customers in mind at all steps of the process. For example, Phillips of Canada created the company’s first color TV and Phillips of Australia created the first stereo TV. This form of customer specialization and advancement was unheard for in the 1930’s.         Although Phillips dominated the market place for years, problems began to arise. The corporate level structure may have been appearing as a geographic/product matrix the fact of the matter is that the real power lied with the national organizations (NO’s). Phillips and each incumbent CEO attempted to reorganize at no luck. During the 1960’s, trade barriers were battered because of the European Common Market that weakened independent country subsidiaries. New technologies were increasing the sheer size of production runs, and as most of Phillips’ competitors moved their production plants to cheaper countries like Asia and South America. And due to Phillips paying higher for their production plants they were not able to be on the cutting edge of technology and did not create the most up-to-date technology for their customer base. The fact is that in technology without innovation there is nothing just ask Steve Jobs. Their competitors lapped up business for VCR’s, audiocassettes, and microwaves; if you don’t evolve you become obsolete. And the new chairman of the Phillips knew without an overhaul and reorganization none of these problems would be adequately addressed. Management and the higher ups at Phillips understood they needed to do something to get cost down and one of the main ways to do that is to find a cheaper way to make the product in plants in cheaper parts of the world. In addition, getting rid of or making less efficient plants more efficient. Unfortunately, this was not enough to compete with the likes of Matsushita. This best way to deal with this setback would be standardization across plants that would be easily applied globally. Then CEO CEO Hendrick van Riemsdijk set up an organization committee to combat the criticism that the company continued on the path of profitless progress. This organization committee would be responsible for creating a policy paper that describes the responsibilities between the PDs and NOs. The power matrix that the organization committee supported provided the NOs with the most freedom and voice, which would make it hard for management to speak out or make decisions, impeding progress that only ended up hurting Phillips.  Phillips really strived to get back to its glory days but those days were behind them due to new competitors who could do what Phillips did but only cheaper, faster and more efficiently. During this era the innovation in the technology sector was astounding and it just wasn’t going to be very easy for Phillips to stand out as an innovator.

3. The case, “Philips versus Matsushita: The competitive Battle Continues” by Christopher A. Bartlett, describes how Philips and Matsushita adopted different

strategies that helped both of them gain very different, but successful organizational capabilities. Philips, with its responsive national organizations, and adaptive marketing achieved a great success, and was the industry’s leader for years. However, by the end of 1960s, Philips lost its responsive capability and innovation which allowed Matsushita with its centralized and very efficient Japan operations to grow bigger and take the lead. Starting from Holland in 1899, Philips was growing consistently. Its success helped the company grow internationally, and soon took over the electric lamp industry by 1912. During the 1919s period, Philips entered into Principal Agreement with General Electric, and soon after Philips changed its strategy from a highly centralized company to a decentralized sales organization, which had marketing firms in Europe (14 countries), China, Brazil, and Australia. Furthermore, the company broadened its product line to include electronic vacuum, first radios, and x-ray tubes by 1930. The subtle competitive leadership between the Philips brothers helped the company’s growth. In response to the impeding war in the late 1930s, Philips transferred its global assets to British Philips, and North American Philips Corporation. Philips also moved most of its vital research laboratories to Redhill in Surrey, England, and the top management to the United States. As a result of the war, the individual country organizations became more independent as they were isolated from each other and also from headquarters. This helped these organizations to become increasingly self-sufficient where they adapted and responded to the changing market conditions during the war. The smart move Philips made was when they took the success their individual organizations achieved, and used it an asset in the post-war era. Philips made a decision to build the post-war organization on the strengths of the NOs. In addition to the adaptive marketing, Philips improved their technical capabilities to include product development, which became a function of local market conditions. The responsive national organizations were very innovative, the Canada plant invented the first color TV, Philips Australia invented the stereo TV, and Philips UK invented the TV with teletext. As the national organizations held the most of Philips power, the company enjoyed a great success and was the leader in its industry until the late 1960s. During that period, the trade barriers were taken away by the European Common Market which in turn destroyed Philips’ successful strategy as the independent individual national organizations did not have to be independent anymore, therefore decreased their ability to be innovative. As a result, the demand for new transistor-based technologies grew bigger than the capacities of Philips national plants to innovate and produce. Philips’ competitors were

catching up as they moved their production plants to Asia and North America to take advantage of the low production costs while Philips continued with the same strategy. As a result, the competitors with their centralized and highly efficient operations in japan took over the mass market of audiocassettes and microwave ovens of which Philips had invented, and Philips lost the ability to respond to the changing market conditions. Since then, Philips went through many reorganization plans, but still fell short of gaining back their success. In conclusion, Philips was the leader in the electronics industry with its competitive capabilities. Philips’ strategy of building responsive individual national organizations able to produce innovative products in response to the specific country-market conditions, was the reason behind the great success the company enjoyed for a long time. But, the loss of trading barriers between the previously independent national organizations during the late 1960s, slowed Philips’ ability to implement their strategy. A change was needed, but Philips failed to find a strategy that would help regain its success. On the other hand, Philips competitors such as Matsushita took advantage of the changing environment and adopted a very efficient strategy by moving their operations to Japan, which helped them grow bigger take the lead away from Philips.

4. In the article titled, “Philips vs. Matsushita: The Competitive Battle Continues” Christopher A. Barlett describes the diverse strategies and schemes used by both businesses to obtain a competitive edge over the other. As both companies battled over the global marketplace major challenges emerged; correlated with competitive positions and organizational models. To combat these challenges, several rounds of organizational restructuring and an attempt at adapting to the market occurred. The ultimate result (no longer industry leader) was not what each company hoped for. My response will be focused on what Phillips did to become the leading consumer electronic company in the post-war era, continuing through the 1970’s.             During the late 1930’s, with the impending war on the horizon, Philips would transfer its assets overseas to two trusts, British Philips Corporation (from Holland to U.K.) and North American Philips Corporation (from Holland to America). Furthermore, Philips moved most of its vital research laboratories and top management to the United States. The No’s (national organizations) were becoming more and more independent during the war. “Their greatly increased self-sufficiency during the war had allowed most to become adept at responding to country-specific market conditions (very valuable asset). “ For example, due to economic conditions and consumer preferences varying (one country likes rich furniture-encased TV set vs. another country liking contemporary model) Philips tailored, modified, customized, and adapted its product offering to make

it useable for a new locale. This added value to Philips’ offering and the customers would soon see that. Responsiveness would extend past that adaptive type of marketing.  Product development would become a function of the local market conditions. An example of this was when Philips of Canada crafted the first company color TV, Philips of UK created the first TV with teletext, and Philips of Australia generated the first stereo TV.             While this strong building block and elite organization had prospered, problems started to arise.  It was becoming more and more clear that even though the corporate level structure appeared as a geographic/product matrix, the real power belonged to the national organizations. Philips attempts at reorganization began to fail. During the later part of the 1960’s, the European Common Market battered the trade barriers and weakened independent country subsidiaries.  New technologies were beginning to demand even larger production runs than many national plants could accomplish and many of Philips’ competitors were moving their production to newer facilities due to low- wage areas (in turn creating higher profit) in South America and Asia.  At the same time, Philips began to falter due to not having the ability to bring innovative products to the market anymore. Their competitors started capturing the mass market for microwaves and audiocassettes.  Moving forward, the chairmen knew that reorganization of the company was A MUST in order to deal with this growing set of problems.

5.  In the article titled, “Philips vs. Matsushita: The Competitive Battle Continues” Christopher A. Barlett describes the diverse strategies and schemes used by both businesses to obtain a competitive edge over the other. As both companies battled over the global marketplace major challenges emerged; correlated with competitive positions and organizational models. To combat these challenges, several rounds of organizational restructuring and an attempt at adapting to the market occurred. The ultimate result (no longer industry leader) was not what each company hoped for. My response will be focused on what Phillips did to become the leading consumer electronic company in the post-war era, continuing through the 1970’s.             During the late 1930’s, with the impending war on the horizon, Philips would transfer its assets overseas to two trusts, British Philips Corporation (from Holland to U.K.) and North American Philips Corporation (from Holland to America). Furthermore, Philips moved most of its vital research laboratories and top management to the United States. The No’s (national organizations) were becoming more and more independent during the war. “Their greatly increased self-sufficiency during the war had allowed most to become adept at responding to country-specific market conditions (very valuable asset). “ For example, due to economic conditions and consumer preferences varying (one country likes rich furniture-encased TV set vs. another country liking contemporary model) Philips tailored, modified, customized, and adapted its product offering to make

it useable for a new locale. This added value to Philips’ offering and the customers would soon see that. Responsiveness would extend past that adaptive type of marketing.  Product development would become a function of the local market conditions. An example of this was when Philips of Canada crafted the first company color TV, Philips of UK created the first TV with teletext, and Philips of Australia generated the first stereo TV.             While this strong building block and elite organization had prospered, problems started to arise.  It was becoming more and more clear that even though the corporate level structure appeared as a geographic/product matrix, the real power belonged to the national organizations. Philips attempts at reorganization began to fail. During the later part of the 1960’s, the European Common Market battered the trade barriers and weakened independent country subsidiaries.  New technologies were beginning to demand even larger production runs than many national plants could accomplish and many of Philips’ competitors were moving their production to newer facilities due to low- wage areas (in turn creating higher profit) in South America and Asia.  At the same time, Philips began to falter due to not having the ability to bring innovative products to the market anymore. Their competitors started capturing the mass market for microwaves and audiocassettes.  Moving forward, the chairmen knew that reorganization of the company was A MUST in order to deal with this growing set of problems. Management needed to try anything in order to get costs down (focus on core operations and get rid of/close down least efficient plants), yet continue to get the most out of what they were already using.  This still wasn’t necessarily enough to compete with Matsushita. Therefore, the best decision was switching from focusing on things locally to a standardized approach that can be used internationally (better globally). To combat criticism, such as when one magazine described the company as “continued profitless progress”, CEO Hendrick van Riemsdijk designed an organization committee, which would be responsible for creating a policy paper that describes the responsibilities between the PDs and NOs. “Yellow Booklet” was then created which outlined the disadvantages of Philip’s matrix organization. The power matrix would provide the NOs with the most, which would make it hard for management to speak out or make decisions, impeding progress.  Giving too much power away, in turn, would take everything to a new low point Philips tried many different ways to get back to where it was previously, but with new competitors in the market and new innovations created at lower costs things were not looking good for Philips during this time period.

6. In “Philips versus Matsushita: The Competitive Battle Continues,” author Christopher A. Bartlett details each firm’s global strategy and tactics used to achieve a sustainable competitive advantage. As Philips and Matsushita grew over many decades and competed against one another in a global marketplace, multiple rounds of corporate

restructuring and inability to adapt to shifting market needs resulted in each company’s subsequent loss of title as industry leader. This response will focus on Philips’ efforts to be an industry leader during the time period of Post-World War II through the 1970s. Philips’ foresight with the forthcoming Second World War resulted in the company transferring its assets overseas from Holland to the UK and North America; research laboratories moved to England and top management was relocated to the United States. During the war these National Organizations (NOs) grew in independence from the parent company and were self-sufficient, becoming adept at responding to country- specific market needs. For example, Philips was able to customize its product offerings for each market need by leveraging a localization strategy. This allowed Philips to manufacture and sell television sets based upon county-specific market conditions – a valuable asset mentioned in the case study – and propel the company to the top-spot. By adapting its product offerings for each market through localization, customers perceived an increased value in Philips’ offerings while Philips, through the use of NOs, could easily adapt its strategy to match the country it was operating in. Product development was encouraged by the NOs as a function of each local market and what market-selling model worked best. This tactic resulted in color televisions debuting in Canada, stereo televisions launching in Australia, and teletext first appearing in the UK. Despite creating a strong global organization over the course of 30 years, Philips soon had a problem on its hands: the National Organizations held most of the power and the organizational structure was based on a product or geographic matrix. In the 1960s, trade barriers were relaxed and independent country subsidiaries like the National Organizations were no longer needed. Philips’ core competencies, such as meeting local and segmented market demand with innovative products, were weakened as new industry players from Japan (i.e., Matsushita) utilized technology exchanges and patent licensing to enter the market with greater economies of scale and lower cost products. After losing the video format war to Matsushita’s VHS system, the company knew that it needed to reorganize to stay relevant and keep up with market trends. The “Yellow Booklet” report cited that the current Philips’ organization matrix made it unclear as to who was in charge of the company and this uncertainty reduced the time to market for technology products – a practice that was ramping up at Matsushita. Philips’ top management knew that their current company structure was not feasible for long-term success, as they needed to achieve better economies of scale. Facing strong cost pressures and local responsiveness, the company ideally needed to restructure its strategy from localization to global standardization, as this would provide the economies of scale and more standardization of products for a global market – typically through the use of centralized production centers. Increased batch runs and use of standard parts would cut costs, a practice adapted by Matsushita as it grew during the same time period. While this feat seems easy in theory, it was not practical in a real-world scenario. Over the course of 40 years of operations, the National Organizations held such high power that top management had difficulty asserting power over them. Any attempts to ‘tilt’ the organization’s power matrix was met with strong resistance and, as a result, the company had to sell peripheral business units, such as welding and furniture making, and focus on perceived core operations. Individual production plants were closed across Europe, but it still wasn’t enough to compete with Matsushita and other Japanese companies that implemented stronger core competencies, such as Kaizen strategies. It is true that Philips built a strong organization during its early years of operation that

allowed the company to hold a sustainable competitive advantage for nearly 30 years. However, top management transferring too much of its power to the localized subsidiaries resulted in a scenario where the ‘inmates’ were running the proverbial ‘asylum’. By giving up so much power, Philips’ corporate office and management team were never able to recover their initial influence over the company, and as a result, created a company structure that was segmented. As the global marketplace barriers softened and more industry players emerged, the company’s business structure was realized to be outdated and disorganized; any attempts at organization were met with resistance by the National Organizations and, as a result, the company started to erode from within. Philips never did regain its competitive advantage and saw new industry leaders emerge into the market from Japan that brought innovative products to customers that were cheaper and quicker to manufacture. In business, leaders must keep control of their companies and their eyes on the market. Being nimble to adjust to these conditions sets apart the industry leaders from industry stragglers.