Philips versus Matsushita

Bhavna Gaule, 157/45 Deepika Raj, 172/45 IIM Calcutta

Founded in 1892, Gerard Philips, Eindhoven, Holland Single product focus, employee welfare Technology and product development core strengths Decentralized, joint leadership management style Highly autonomous responsive national organizations

Founded in 1918 by Konosuke Matsushita in Osaka, Japan Invested 100 yen to produce double-ended sockets. Expanded to various products First Japanese company to adopt the divisional structure
One-product-one-division Internal competition fostered among divisions

Flood of products in post war boom Matsushita built its success on its centralized, highly efficient operations in Japan

1.) Power struggle between Nos and PDs NOs had the real power PDs found it difficult to get their voices heard Difficult to account responsibility 2.) Late to market Decentralized organizational structure and autonomous national organizations Example: failure of V2000

3.) Closure of inefficient plants huge loss of manpower Loss of human resource capability on account of cost cutting Example : Failure of HDTV technology owing to 37% cut in R&D personnel
4.) Trade barrier erosion independent country level subsidiaries rendered unnecessary Rivals moving to low cost regions 5.) Lack of coherence in strategy and structure Failed to adapt to the changing demands and the strengths of the competition

Highly centralized and inflexible organization structure: Slow to manage change Dependence on competitors for technological innovation Threat of discontinuous innovation which may drastically change product technology Excess capacity and evaporating profits Disgruntled overseas staff Lack of initiative by foreign plants Chaos by Destruction and Creationprogram

Philips

Market Seeking

Matsushita

Strategic Motives

Cost Reduction

Pursued a multinational approach Managing risks against impending wars Autonomous national organizations controlled their own marketing, production and R&D decisions to respond to country specific demands Opening up of trade barriers Shift in strategy to low cost scale intensive approach

Matsushitas main internationalization motive was market seeking and cost reduction It aimed to get benefits from economies of scale by pooling production & other activities Exploited lower factor costs by moving production to low cost countries Increased operational & production flexibility Increased bargaining power with suppliers Global availability, serviceability and recognition

Matsushita

Achieving Efficiencies

Innovating, Learning, Adapting

Philips

Managing Risks

National Differences Achieving Efficiencies Matsushita benefitted from differences in factor costs such as wages and cost of capital

Scale Economies Matsushita expanded and exploited potential scale economies in each activity

Scope Economies Matsushita shared investments and costs across products, markets and businesses Philips did portfolio diversification to create options for various kinds of consumers in different markets

Philips managed different Managing Risks kinds of risks arising from market or policy induced changes

Innovating, Learning & Adapting

Philips learned from societal differences in organizational and managerial processes and systems as well as consumer choice

Matsushita benefitted from experience, cost reduction and innovation and exploited it in foreign markets

Gerard Philips, 1892

One-product focus,Use new factories and machines for production efficiencies
Attention to employee welfare, national organizations with autonomy Ability to respond to country-specific mkt conditions

Van Reimsdijk & Rodenburg , 1970

Attempt to balance power between NOs and PDs Cutting down joint leadership IPCs built to increase the flow of goods among NOs - power stil with NOs

Wisse Dekker, 1982

Shut down inefficient plants, aquire new businesses PDs responsible for product management, NOs for local profit Sales continued to decline, profit remain stagnant

Van der Klugt, 1987

Established 4 core businesses, reduced R&D spending
Shut down many plants, thousands of manpower laid off Unanticipated losses, half of management replaced

Jan Timmer, 1990

Expansion into software, services and mulitmedia R&D personnel cuts, little technological know-how

Cor Boonstra, 1996

Production shift to low cost areas, simpler manufacturing and marketing

Replaced 21 PDs with 7 divisions and 100 business units

Improved performance with 24% return on net assets

Gerard Kleisterlee, 2001

Close non value adding operations, outscource such activities Rise in sahreholder pressure, reported losses

Konosuke Matsushita, 1918

Extensive distribution, product line extension
Licensing agreements, worlwide production Internal competition- One product one division structure

Toshihoto Yamashita, 1982

Increased localization of operations: personnel & resources Overseas production remained too dependent on centre Allowed local divisions to have more operational control

Akio Tanii, 1986

Integrated foreign subsidiaries under METC control
Relocated major regional headquarters to Europe, North America $17.5 billion in liquid financial assets until the bubble burst in 1992

Yoichi Morishita, 1993

Focused on cost reduction and increasing operational flexibility Sold 80% of MCI and shifted production to offshore companies Cut headquarters staff and decentralised responsibility

Kunio Nakamura, 2000

Integrated one-product divisions into multi-product production centers 'Destruction and Creation' program: Disbanded product division structure Plants were integrated into multi-product production centres

Architecture
Product Division
National Organization

National Organization

Technology Manager

Commercial Manager

Finance Manager

Technology Manager

Commercial Manager

Finance Manager
Product Division

FORMAL NETWORK

INFORMAL NETWORK

Routine Company policy to renew plant machinery Power conflict between NOs and PDs Shutdown of a number of inefficient plants marked by a great deal of turnover Structural changes incompatible with strategy of the firm Culture Joint leadership, cultivated competitive behaviour, Decentralized structure to cater to different market tastes

METC and the product divisions used to set detailed sales and profit targets The company hired Japanese managers and technicians on foreign assignments to build relationships Regular face-to-face meetings between managers of foreign subsidiaries and the headquarters Independent product centers; One product- one division structure to maintain the hungry spirit. Various product divisions competed amongst themselves for market, funds, R&D etc

Centralised decision making Reliance of foreign subsidiaries on centre Japanese collectivist culture clashed with American individualist culture Lack of technological innovation Tendency to outsource Internal competition amongst divisions Global strategy not aligned to structure: Lack of integration of business decisions

Product innovation & development Employee relationship initially Expanded geographically to prevent war bombings, kept the company alive

High number of layoffs - failure to built on its human resource capability lost focus of core competencies in the process of cost cutting

Slow bureacracy - PD having lesser influence on top management

SWOT

Shareholder accountability Capitalize on foreign presence License superior technology to competitors to avoid cases like that of V2000 lack of formal structure in company Asian competitors outperforming Volatile electronics industry - subject to economic conditions

Geographical shifting capabilities Internal competition spurred growth Scale-intensive output capabilities Quick introduction of products to market Fast and efficient operations

Canabalisation due to internal competition Lack of resources for new development Too much centralization led to turnover in foreign subsidiaries Outsourcing leads to low recognizability

SWOT

Outsourcing to nearby asian countries New technological developments Geographic centralization of operations Use cost advantage to conquer western markets

Loss of outsourcing business - Increase in wage rates etc Innovation of new technology by competitors Lack of internal R&D in the company

Sustained investments in R&D and marketing Increase employee morale, reestablish innovations and efficiencies Find a structure in tune with the operational strategy The current organizational structure, designed around healthcare, lighting, and consumer lifestyle Improve delegation of responsibilities to avoid lag in response time

Multi-product divisions created by Nakamura might be a loss making step for short term but it may prove beneficial for long term Matsushita should encourage innovation in its own organization and subsidiaries Prevent excessive interference of centre in foreign subsidiaries Engage workforce and understand their issues before implementing organizational changes Integrate structure to pursue global strategy

Simplified its organizational structure under vision 2010: only 3 product divisions/ sectors Employs134,000 people, holds more than 60,000 registered patents and has sales of EUR 27.0 billion (39 billion US $) Presence in 60 countries Brand promise: Sense and Simplicity Product innovation main business focus Supervisory board above Executive management board- To integrate decision making

Renamed as Panasonic Corporation, Oct 2008 All brands consolidated under Panasonic 556 companies, 14 business domains Own R&D, production & sales divisions Links global risk management activities with business plans Brand slogan: Ideas for life Increasing focus on innovation: Usability Centres Working on digital technology, speech recognition etc.