Introduction
Throughout their business operations, Philips (Netherlands) and Matsushita Electric (Japan) had implemented two different business strategies and operated with different organizational structure and competencies. Philips became successful with the development of international portfolio of national organizations whereas Matsushita Electric focused on centralized and highly efficient operations in Japan. In 21st century, both the companies have faced severe challenges to their competitive and established position in the market. Hence, in order to implement the strategic initiatives and to restructure the organization, the top management of both the companies took their organizations in different directions. It is imperative to analyze how the strategic steps helped both the companies achieve their objective and strengthen their long-term competitive positioning.
Company’s History, Development, and Growth
There were two strategic competencies that Philips focused upon - that were ideal for the environment in which they operated: First the commitment towards technological innovation and focusing their finances and effort towards R&D. This research and development capability provided the raw material to be sold to the national organizations (NOs) of the company that was considered Philips source of competitive advantage. National organizations were decentralized fully-integrated structures that were sensitive and highly responsive to the changing customer needs and requirements. This growing independence of the national centers that enhanced their entrepreneurial capabilities and made NOs the profit centers for the company. This later on resulted in tensions because managing the research and development centers that operated in isolation and over sensitive and responsiveness of NOSs and the lack of focus towards of Product Development (PD) as they had the development resource but mostly it was under the surveillance of R&D or NOs.
On the other hand, the organization structure of Matsushita was completely different from Philips and the company implemented a centralized model and focused its core competence in manufacturing the products at low-cost and fast innovations. This coordinated and well-integrated business strategy helped Matsushita takeover Philips market in the 1980s. Matsushita main resource center and asset base was established at Osaka, Japan, and it did not set-up national organizations like Philips. Instead, it responded to the offshore demands by development of massive centralized organizational and development manufacturing structure.
Company’s Internal Strengths and Weaknesses
Company’s External Environment – Opportunities and Threats
Evaluation of the SWOT Analysis
The analysis of SWOT of Philips clearly states that the company did have a competitive advantage in the beginning, but it lost its competitive edge to Matsushita Electronics. One of the major reasons for losing the competitive edge was the lack of unified global strategy. Since the company lost control over its national organization, it was unable to integrate the research and development (R&D) and product development (PD) with the national organization. If the company is able to develop a centralized structure with a unified global strategy, it will be in a position to shift the business operations in low cost countries in order to make low priced products like its competitor. This will eliminate unnecessary barriers in the value chain and will help the company to launch new products meeting the customer needs on a timely basis. It was important that the organization brings a change in its overall strategy.
On the other hand, Matsushita already had a well-established centralized structure with core competence of low-cost manufacturing and fast innovation as compared to Philips Electronics along with the unified global strategy and limited barriers in the value chain that Philips has not achieved. The problem here was that Matsushita was required to enable decentralization in its business process and due to rising labor cost and value of yen; it was important to shift the business operations to other countries.
Corporate Level Strategy
The mission of Philips is to improve the quality of people’s life through innovation in technology. The vision is to make the world a healthier place through innovation. The company’s mission and vision are aligned with the corporate strategic competence to focus on continuous technological innovation and to focus their finances and effort towards R&D. On the other hand, when the local market saturated the Matsushita implemented a more global level unified strategy that focused on global expansion and provided a strong centralized and well-integrated model of development for the company. This way the company was able to integrate all the departments in the value chain.
Business Level Strategy
The business strategy of Philips continued its focus toward technological innovation and empowerment of NOs to an extent that they became the profit centers for the company. Mainly a differentiation business strategy was implemented in order to provide the customers with innovative products through efficient research and development department. In 1980s, a shift was witnessed where the company was able to differentiate between the core and non-core businesses. The North American Philips was repurchased. The lack of integration between NOs, PD, and R&D, resulted in rising financial cost and till 2001, the company was forced to make job and expenditure cuts. This resulted in the loss of competence and competitive advantage in R&D that meant that the business strategy failed.
In order to implement the global expansion plans, the Matsushita’s business strategy was designed to shift the basic manufacturing operations to low-cost countries but high-value parts were still developed in Japan. The main idea was to develop low-cost products. With the rise in labor cost and Yen strengthening its position in Japanese economic system, the company shifted its assembly plants to Europe and America but the main product division kept strong over the overseas plant. A well-planned functional strategy was implemented to integrate manufacturing, development, research, and marketing department and break the barriers in the value chain. On a business level, more control was given to the local managers to decide about the products and what they want to sell and the authority was given to use local parts. However, when the assembly plants were shifted off-shore, Matsushita was unwilling to restructure the production facilities in Japan. This resulted in the company loses its competitive edge as they were slow to respond to the recession in Japan and lost their profitability of their cash cows.
Structure and Control System
Philips strictly implemented became a decentralized decision-making organization with the matrix organization. Later on the company aimed to centralized some part of the organization but the over empowerment of national organizations did not let the company effectively implement the centralized system. On the other, hand Matsushita maintained a strong centralized and well-integrated model of development and focused on a divisional structure – one division one product. Matsushita integrated horizontally, selling 5000 products and vertically opening 25,000 retail outlets. Philips lost control over the foreign subsidiaries whereas Matsushita maintained full control over its foreign subsidiaries.
Recommendation
The recommendation that will be made to both the companies will be similar. Both the companies should invest in new product development and integrate the research and development (R&D) department because in the electronic industry it is essential that continuous product innovation and improvement should take place. The product should be designed in a manner so that their core is suitable for launch in any market and can be easily customized for local markets. The research and development department should be located where the best talent exists. It is also important that companies should clean up their manufacturing operations. Both the companies should move their assembly plants and other manufacturing operations to the lowest-cost countries in order to maintain their competitive edge with lower prices and product differentiation. There should be one place for assembly of parts, and it should be under control of the manufacturer and not local sales operations.
