Philips Matsushita Case Study Analysis Rubric

Case Study: Philips versus Matsushita: CompeTng Strategic and OrganizaTonal Choices 4 ease of information flow. It has been argued that “having a well-organized information flow can provide a competitive advantage to a company through reduced costs, improved customer service, and more efficient business processes” (Nousianinen, 2008). This type of systematic structure is effective and connects corporate management with the product divisions and national organizations. Some of these competencies also served as incompetencies which caused profit to decline. For instance, N.V. Philips’ NOs became so independent that they lost focus of the main objective of the parent company and instead they focused on their own objectives. This caused flexibility issues and also caused N.V. Philips to abandon many projects due to lack of compliance and cooperation of NOs. Instead of building production factories in low wage countries such as China, Korea, or Mexico, N.V. Philips placed factories in richer countries like Europe, America, and Canada. Due to N.V. Philips focusing primarily on its product and not the local targeted market, they couldn’t capture the global market, thus having to abandon a lot of its innovative ideas. This abandonment hindered the company’s ability to move its products forward. Another inconsistency was N.V. Philips’ attempt to save money and establish some form of standardization, led them to disregard the new global market demand for higher customer service and more products to fit the evolving world. After decades of decreased productivity and profit, N.V. Philips decided to go in a different direction. Over the course of four decades, N.V. Philips did a great job trying to turn the company around by hiring 4 different CEOs in an attempt to offset the damage done by their incompetencies. The biggest improvement came from N.V. Philips implementing a policy to properly establish roles and responsibilities of the product division and the national organization. This policy “proposed rebalancing the managerial relationships between production divisions

Presentation on theme: "Philips vs. Matsushita Assignment"— Presentation transcript:

1 Philips vs. Matsushita Assignment
2008 MBA/ENG 290GInternational Competition in Technology

2 Team 1

3 Value Chain: Philips vs. Matsushita
Team 1Franck Formis, Robert Kong, Vincent Ng, Jameson Slattery, Chuohao Yeo

4 Porter’s diamond Philips Matsushita Factor Conditions
Initial tradition of bolstering educationCreation of the Common Market in 1968 altered factor s of production (land, labor, and capital)Not a multi-domestic market anymoreDemand ConditionsA single marketNew Transistor and circuit-based technologiesUnmet demandDomestic throughout 20th centurySince 1998, investing in R&D partnerships and technical exchanges abroadNeed to broader sources of innovationGrowth through post-war boomShift to export marketsEarlier picture of emerging foreign demandFactor conditionsThe abolition of internal tariff barriers - R&D agreement with the Chinese Academy of Sciences in 1998achieved in Creation of the Panasonic Digital Concepts Center in CaliforniaFreedom of movementDemand conditions- Opening of 25,000 domestic retail outlets- Matsushita « National Shops » ~40% of appliance stores in Japan in the late 1960s- Foreign demand mainly through OEMs (GE, RCA, Philips, …)

5 Porter’s diamond (cont’d)
PhilipsMatsushitaRelated and supporting industriesPrincipal agreement with GE in 1919 > World split into 3 spheres of influenceBy 1998, JV with Lucent to target “digital revolution”Improved performanceStrategy, Structure, and RivalryEarly local production facilitiesAutonomous NOsUncoordinated decisionsA technology exchange and licensing agreement with PhilipsLicensing of the VHS format to other local manufacturersVCR segment ~ 45% of profitsHighly centralized operationsHigh dependence of subsidiariesLow competitivenessRelated and supporting industries- Local manufacturers include Hitachi, Sharp, MitsubishiStrategy, Structure, and Rivalrye.g. North America Philips outsourcing under Matsushita VHS - Centralized Research (CRL)License when Philips had V2000 proprietary technology

6 Philips value chain Philips Research has labs around the globe
R&DComponentsManufacturingMarketing and salesDistributionPhilips Research has labs around the globeAcquired from suppliers. E.g. critical lamp components for LCD panelsOutsourced to low cost nationsMaintain some manufacturing sites. E.g. lighting has sites in 25 countriesSales in more than 60 countriesDo their own marketingUses wholesales, retail stores to distribute productsAlso support limited direct shipments and planningsRed – heavy presence by PhilipsBlue – no or light presence by Philips

7 Matsushita value chain
R&DComponentsManufacturingMarketing and salesDistributionMainly in-house and centralized, PDCC as an initiative to “outsourced” R&DDepend 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 ChinaMainly carry out by subsidiaries located in various countriesCooperation with domestic and overseas mass-scale retailers.Red – heavy presence by MatsushitaBlue – no or light presence by Matsushita

8 Value chain comparison
Centralized versus DecentralizedPhilips: DecentralizedDepend on National organizations to respond to local market.Moving towards more centralized decision to cut cost and enjoy economies of scaleMatsushita: CentralizedMost decision made by headquarters and product division in Japan; local subsidiaries are mostly sales and marketingMoving towards localization to response better to customer demand and preference, PDCC is one of this initiative.Outsourcing versus in-housePhilips: OutsourcedMost manufacturing are outsourced or offshored to low-cost regions. Mostly retain R&D and sales and marketing only.Matsushita: In-houseDirectly control most manufacturing operations located in Japan, Asia and China

9 Challenges faced Philips – Too decentralized
Matsushita – Too centralizedPowerful and autonomous national organizations (NOs)Lack of company-wide strategic cooperation among NOsLack of accountability in NO/PD matrixManagement by technical & commercial consensusSlow to respondInefficient production due to local production centersProduct divisional structureHighly centralized servicesCentralized product developmentSubsidiaries too dependent on parent companyCommunications between overseas subsidiaries and parent company

10 Key restructuring steps
PhilipsMatsushitaRein in NOsCentralize productionFocus on core businessesEmpower global product developmentCombine product divisionsRemove historical organizational structureEmpower regional operationsLocal customization of productionCombine single product divisionsTap overseas/external innovationRemove historical organizational structureName change to Panasonic

11 Outcome and difficulties faced
PhilipsMatsushitaOutcomeContinuing low profit marginsCompetitiveness impactedDifficultiesConflicted local loyaltiesRestructuring for tomorrow using today’s parametersCost-cutting in key aspects, e.g. R&DOutcomeLow profit marginsCompetitiveness impactedDifficultiesCulture of lifetime employmentOrganizational resistanceDifficult Japanese economic conditions in 1990s

12 Philips becoming the leading consumer electronics company
Focused on one product rather than diversifying in early daysBecame leader in industrial researchCompetenceIndependent National organizations.adept at responding to country-specific market conditionsBuilt their own technical capabilities to address local market conditionsEnforce market specific researchBusinesses being supported by the research are responsible for the R&D budgetIncompetenceProduct division had no real powerNO ignores main company’s welfare and focuses on local profit (Ex. V2000 case)Too many factories over the worldHigher cost than simply outsourcing or having one area serves the global market

13 Matsushita displacing Philips
Focused on VCR productionHigh volume allowed them to slash price quicklyLicense VHS format to other manufacturerHighly centralized systemCompetenceHuge number of retail outlets6x the outlets of rival SonyAssured sales volume and direct access to market trends and consumer reactionOne-product-one-division systemInternal competition“Small business” environmentMain company acts as a “bank”

14 Matsushita displacing Philips (cont)
CompetenceUnder fund the central research laboratoryForce it to compete for additional funding from divisionsGive overseas sales subsidiaries more choice over the products they soldIncompetenceOver-managementExpatriate managers located throughout foreign subsidiariesStrongly-held commitments to lifetime employmentCan not compete with companies who outsource to low-cost Asian countriesProduct divisions were not giving sufficient attention to international developmentOversea subsidiary companies act little more than implementing agents

15 New US CE Companies: Apple, Chumby, Kindle, Microsoft, Roku & Tivo
R&DComponentsManufacturingMarketing and SalesDistributionEach 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:AsusCelesticaFlextronicsFoxconnQuantaWistronEach 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 Tivo’s direct marketing and sales initiatives.Apple’s distribution is heavily skewed toward direct (online, company-owned retail stores).Chumby is primarily available through online distribution – both direct and w/ partners.Kindle is primarily directXbox 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.

16 Apple in the MP3 MarketApple designs and controls the major consumer touch points in the MP3 marketDevice HW and SW, PC SW, and distributionFocus on ease of use and HW & SW eleganceApple has permeated the retail channels with iPodsAdvertising focus that drives demand & replacementDesign as a differentiatorDRM as a lock-in

17 Philips & Matsushita in the MP3 Market
Any competitor is unlikely to unseat Apple by doing the same as Apple or making iterative improvementsPhilips and Matsushita should invest in the next generation of music consumptionPrepare for the demise of the music-only deviceShift to cloud-based subscription services available anytime to countless types of devicesExplore business models of giving away the music to undermine Apple’s current business model

18 Changes at Philips More efficient production
Concentrate production in International Production CentersSupplies multiple NOs worldwideShift production to low-cost regionsOutsourcingLink product development to marketPD management moved to most competitive product marketsR&D budget provided by supported businessesRein in NOsPDs have formal product management responsibilityConsider input from NOs, but have final decisionShare re-purchase

19 Changes at Philips (cont’d)
Focus on core businessesClose inefficient operationsSell non-core businessesRemove historical organizational structureReplace joint technical/commercial leadership with single managementReplace PDs with general divisionsIndividual business units responsible for global profits

20 Changes at Matsushita Localization
Use of local nationals in key positionsModification of processes to accommodate local equipment, requirements, components, technologiesLocal choice of offered product lineMajor headquarter operations relocated to local regional officesIntegrate Japanese and overseas operationMETC controls all foreign subsidiariesMETC merged into parent company

21 Changes at Matsushita (cont’d)
Tap overseas/external innovationAcquisition of innovative overseas companiesDevelop technology overseas and externally through partnerships and exchangesDe-centralizationMulti-product divisions to have control over multiple product plantsMarketing performed by National/Panasonic

22 Team 2

23 Philips Vs Matshuita Team 2:
Jon Wiesner, Rachel Simon, David ExpositoCossio, Yanpei Chen, EmrehanKirimli

24 Porter’s Diamond: consumer electronics industry
Japan: Centralized companies. Reluctance to delegate activities. Process innovation rooted in culture. Huge local rivalryNetherlands: Decentralized companies. Low local rivalryJapan: highly demanding and sophisticated internal buyers. Huge market.Netherlands: small internal market. Internationalization needed to survive.Structure, Strategy, RivalryFactor ConditionsDemand ConditionsJapan: Highly skilled labor force. Large number of engineers. Highly efficient production process. Traditions deeply rootedNetherlands: Highly unionized industry. Expensive workforce. Entrepreneurial culture. Small Country located in centre of Europe. Both countries large expenditures in R+DRelated and Supporting IndustriesJapan: Large number of supporting industries: transportation, copiers, cameras, audio, appliances, musical instruments…Netherlands: medium/high number of supporting companies: canon, HP, TomTom, …

25 Value Chain Comparison
SupplyOperationsDistributionMarketingServicesPhilipsRaw materialsLightingPartsDAPCEMedical SysManufacturingLightingDAPCEAssemblyMedical SysRetailLightingDAPCEHospitalMedical SysOne Philips brandMedical SysMatsushitaRaw materialsComponentsHome AppPartsAVCMEWManufacturingComponentsAVCHome AppMEWRetailAVCHome AppMEWOEM & Self UseComponentsMerge brands into PanasonicComparisonPhilips actively consolidating suppliesMatsushita heavy focus on manufacturingBoth are mainly retail with some enterpriseBoth do brand consolidationPhilips trying to move in this direction

26 Competencies/Incompetencies
Philip’s SuccessHow they became leader: developed national organizations (NOs) that were independent, and specialized in local market demand for specific and diverse technologies.CommonMarketCompetencies/IncompetenciesFragmented product line (no economies of scale)Adaptive to diverse markets/Slow to marketStrong R&D funding/Poor global strategyStrong National Organizations/Technologies lost in market flooded by competitorsReputation for quality/Loss of market shares to low wage outsourcing competitorsCommitment to employees/

27 Competencies/Incompetencies
Matsushita’s SuccessHow they became leader: global scale approach of rapidly bringing a emerging technologies to saturate the market1989 crashCompetencies/IncompetenciesResistance by employees to structural changeStrong culture, visionary leader/Weak on innovationFast [follower] to market/Excess capacityBroad product line/High overheadStrong distribution system,high retail presence/Dependant on center; loss of talent due to perceived overbearing topCentralized Japanese structure/

28 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 barriersPhilipsHistorical: legacy of WWII and decentralization of operationsCultural: strong cultural ties to EindhovenOrganization: matrix organizational structure constantly between PD and NO reorganizedManufacturing: late to outsource manufacturingProfitability: low margin business leaves little room for errorTechnological: big bets on losing technologies and standardsStructural and Macroeconomic: high cost of layoffs of European workersMatsushitaCultural: lack of independent thinking by overseas subsidiariesOrganization: legacy of product division structureEmployees: tradition of lifetime employmentManagerial: highly centralized management styleTechnological: over-reliance on declining products (TVs, VCRs, etc.) and lack of innovationStructural and Macroeconomic: economic malaise in Japan starting in the 1990s

29 Mp3 Player Market vs. What has allowed Apple to succeed?
or Zune by MicrosoftWhat has allowed Apple to succeed?relaxed, casual, collegial environment with high-work ethicemphasize on innovation and design (teams all over the world)User Experience Architect’s Office was established to make Apple products easier to useWhat should Philips and Matsushita do to compete?focus on innovative physical appearance and user interfaceadd features like wireless sharing, games, etc. which iPod does not havedesign more than just a player, also offer software platform that allows music to be shared from PCs and other devicespartnership with companies to gain more youth population (ex: Samsung & Adidas vs. iPod & Nike )or Samsung and Adidas

30 Team 3

31 Philips vs. MatsushitaTeam 3: Gonzalo Baez Silvio Filho Brian Gawalt Ryan StanleyMBA290G, Oct 8, 2008

32 Comparison of Porter’s Diamond Factors
Factor ConditionsBoth 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.”Demand ConditionsJapan 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.Related and Supporting IndustriesBoth countries have national access to companies to suppliers in chemical and other equipment or machinery industries for production.The Netherlands includes robust research institutionsCluster development in Japan related to consumer electronics and semiconductors.Firm Strategy, Structure, and RivalryCluster 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.

33 Value Chain ContrastMFGWare-house and direct salesIn-houseOutsourcedDistribution centers, retailersEnd customerCustomer serviceR&DMFGDirect and online SalesIn-houseOutsourcedDistribution centers, retailersEnd customerCustomer serviceR&DPhilips had a decentralized approach for manufacturing and sales.Matsushita had nearly everything centralized in Japan. Marketingcompetitive advantage over manufacturing.

34 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 offeringSmall national market instigated robust export function and global sales and marketing forceVital research facilities and top management transferred overseas as WWII approachedWWII destroyed factories, so chose to rebuild on strengths of National OrganizationsIndependence of management to actAbility to sense and respond to differences in national demands of countries of operations related to marketingTake advantage of surrounding talent and cultures for independent technical capabilities as wellDeveloped strong competency in R&D and technical developmentLacked 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 andPanasonic succeeded Philips in global dominance through central planning, strategic manufacturing choices, and a strong system of controlsOpened 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-marketLacked strong independent R&D near global marketsStrategy for more regional control was hard because of ingrained culture and tight controls. However, implementing “Outsourced R&D” through incubators helps overcome Panasonic’s lagging innovation by supporting start-ups without difficult cultivation of in-house expertise.Market ConditionsPenetrate UK with rental businessFurniture-encased vs sleek modelsElitist prejudice againstTVTechnical CapabilitiesCanada for color TVAustralia stereo TVUK TVs with teletext

35 Apple’s keys to success in MP3 market
Corporate cultureOrganizational structureApple 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 & iTunesRebel 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.

36 Team 4

37 2008 Philips vs. MatsushitaChristian HuthLakshmi JagannathanChristopher QuekDaisuke TanakaJohn Michael Wyrwas

38 Firm Strategy, Structure & Rivalry
Philips challenged with independent national organization focusing on R&DFactor ConditionsDutch legislation prevents hostile raidsBureaucracy leads to slow-moving transformation of companyCEO succession hinders continuous development of strategyFirm Strategy, Structure & RivalryOriginal competitive leadership by commercial and technical functions (PD/NO matrix) was succeeded simpler and structured marketing and manufacturing organizationOriginal worldwide portfolio of responsive national organizations increases manufacturing costs (start of outsourcing)Strong industrial researchSupporting IndustryTechnology-sharing agreements and offshore manufacturing shall lead to reduced costsDemand ConditionsAdoption to local markets by independent national organizations in marketing as well as in product development

39 Firm Strategy, Structure & Rivalry
Matsushita with centralized organization and strong manufacturing capabilitiesHigh value-add per hour in manufacturingLow labor costs in developing countries where parts of manufacturing is outsourcedEarly trade-liberalization enabled Matsushita to start export businessFactor ConditionsFirm Strategy, Structure & RivalryWorldwide business based on centralized, highly efficient organizations in JapanShift 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

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