Other electrical engineering companies adopted the method of diversification for their growth. However, Phillips focused on only one product, that is, the light bulb. Due to this focus on one product as well as the founder’s technical knowledge, the company was able to innovate significantly. The founder’s brother, who was an excellent manager, always used to scrap the old manufacturing machinery and replace them with new machinery whenever there was a change in the process due to advances in technology. Being a good manager, he made provisions for investing in new machinery and writing down the old machinery. They also invested in research by establishing physics and chemical labs. These labs addressed production problems as well as invented tungsten metal filament. This new metal filament was a huge success and gave Phillips the financial might to compete against the other electronic manufacturing giants. They then expanded sales into other countries in 1899 so that they can build enough volumes to mass-produce. When problems of overcapacity arose, Phillips solved the problem by building sales organizations in other countries but keeping the control centralized at Holland. It arranged with General Electric so that patents could be utilized by both. During the initial stages, Philips concentrated on developing technologies and productizing them successfully. Then they were successful in localizing those innovations. That was one of their reasons for early success.
Then it started to evolve into a decentralized organization. It started by having autonomous marketing arms in multiple countries. During the period 1910s and 1930s, they diversified into radios, vacuum tubes, and X-ray tubes, and were successful. During the Great depression, they survived by moving the production also to local facilities in each of the countries where they had sales. They formed National Organizations (NO), which were country specific and were therefore able to respond to country specific needs and achieve self-sufficiency. From adaptive marketing, the NOs also took care of developing technical capabilities that were needed for their respective markets, while the research functions were still centralized, and adopted a matrix organization. By quickly adapting to the circumstances and market requirements better, and by focusing strongly on research, Phillips did better than the other electrical engineering companies did.
In both cases, the organization structures that allowed the companies to prosper earlier, proved to be their nemesis after a level of growth was attained. In case of Phillips, the founder Gerard was the technical counterpart, while his brother Anton was the marketing and management counterpart. They were used to challenging each other by trying to outperform one another by setting goals that the other had to stretch to achieve. Since they felt that it worked well for them, they adopted the same matrix structure for NOs. However, this resulted in a matrix organization where fixing the responsibility for any issue became impossible due to the fact that every activity had two people responsible for it. Other issues such as the creation of common European market resulted in the existence of many subsidiaries pointless. It lost its ability to innovate and lost its battle of videocassette format. Different CEO tried to reorganize the company in different ways to ensure that the priorities were properly set and followed, but the managerial matrix still did not simplify itself or struggle for power did not abate. Its attempts at cost cutting by reducing workforce resulted in large payments to the workforce that was fired diminishing the returns. Due to this, the company had to face a class action lawsuit of 2.5 billion USD for misleading positive projections. As successive managers kept cutting the workforce, there were no skilled workers available to take advantage of, when they tried to move to a high technology, high-growth products, at a later stage.
In the case of Matsushita, the initial structure was geared towards more centralized control so that the direction and operational parameters were decided by the parent company while the subsidiary had other things at their control. In the later days, this was a disadvantage as the subsidiaries did not take any initiative but remained only as followers. This meant that the company had to have tie ups with Chinese Academy of Sciences and invest in startup incubators to generate new technology and products. The attempts at localization by the Matsushita did not work. At a later stage, the subsidiaries had enough local presence that the operations could no longer be decided by the parent company so they had to resort to controlling the output (productivity and quality). Various restructuring efforts were done at great cost but to no avail. The final point that affected their turnaround was the global crises in 2009. Both the companies failed due to their organization structure and their failure to change them in the way they planned to.
Kleisterlees’ strategy to become the Dell of consumer electronics is a sound one as they were going back to their roots. Gerard invented and productized the invention while Anton marketed it. Being the Dell of consumer goods meant that they would be focused on product development, brand, and channel management. Since their strength is product development and the actual manufacturing of the goods is cheaper in Asian countries, it is better to follow this route if Philips has to compete with others as the others are also moving their manufacturing to Asian countries. Philips not only focused on high-tech innovations but also innovations that were more suited for developing markets such as India. Since those markets have huge potential, Philips is hopeful of success due to this approach. As of 2009, it was still making losses.
Nakamura’s plans were derailed by the recession in 2001 resulting in losses. Due to these losses, he had to abandon his original plan and resort to implementing emergency measures. He did not want Matsushita to end up an imitator or slow innovator as he felt that companies that innovate slowly or imitate have no future. To improve finances as well as competitiveness, he cut workforce by 30,000, as part of a reorganization process, but still ended up making losses. He eliminated internal competitiveness, which had been the cornerstone of the KM’s (the founder) strategy for growth. This stemmed the losses and the company was able to return to profits in 2004, but not to the extent that he promised. He stepped down after achieving the 5% operating margin in 2006.
Korean companies do not use multiple factories for each location and they use economies of scale by concentrating their manufacturing at only a few locations. They have a reputation of being fast followers. Samsung, a Korean company, has an operating margin of 9.4%. They are also supported by their governments. They are probably owned by Chaebols, which are vastly powerful conglomerates. To compete with them, Ohtsubo has to be very careful and eliminate all wasteful expenditure. He should ensure that all manufacturing is outsourced to reap the benefits of economies of scale, just like the Korean companies do. The organization structure should be tweaked so that the company can become nimble and respond quickly to business needs. The speed at which Samsung or LG churn out various models of mobile phones every six months with huge innovations is an example of the nimbleness needed to compete with Korean companies. Ohtsubo should also focus on complete customer satisfaction and high quality in the goods that are sold by the company. By giving the customers what they want, a larger price can be charged resulting in more margins. Samsung has a high level of vertical integration. For example, while making a mobile phone, Samsung can get a majority of the parts from itself. This kind of vertical integration is not available for any other company. Philips should not fall into that trap and try for vertical integration as achieving that level of vertical integration requires huge investments and time to mature.
References
Bartlett, C. A. (2008). Philips versus Matsushita: A new century, a new round. Harward Business Review, 9-302-049 (1-20).
Lam, S. S. (2010, April). South Korea: Finding its place on the world stage (The resilient economy). Retrieved from mckinsey.com: http://www.mckinsey.com/global-themes/asia-pacific/south-korea-finding-its-place-on-the-world-stage
