3. COMPARISON OF PHILIPS VERSUS MATSUSHITA Philips and Matsushita are among the largest consumer electronics companies in the world. Their success was based on two contrasting strategies. It seems that Matsushita and Philips had adopted two cultural extremes in their organizations; Matsushita with a highly centralized operation that dictated global operations, Philips a conglomerate of similar businesses with little central coordination. Both realized that they needed to adopt the best practices from the other company. In a mass-market like consumer electronics, this would mean a strong central organization that could develop standards for emerging technologies in order to develop economies of scale for production, yet has the flexibility to adapt the standards to fit the desires of local markets. 3.1.
Value chain comparison Philips
Centralized versus Decentralized
Outsourcing versus inhouse
Mashushita Decentralized: Centralized: -Depend on National organizations to Most decision made by respond to local market. headquarters and product division in Japan; local subsidiaries are mostly sales and marketing -Moving towards more centralized - Moving towards localization to decision to cut cost and enjoy response better to customer demand economies of scale. and preference, PDCC is one of this initiative. Outsourced: -Most manufacturing are outsourced or offshored to low-cost regions. Mostly retain R&D and sales and marketing only.
In-house: -Directly control most manufacturing operations located in Japan, Asia and China
As compared above, the main challenges that two company is facing significantly show the pros and cons of different strategy they set for their company: While Philips’ strategy decentralized so heavily and based on outside resource, Mashushita appeared to be too centralized with its in-house manufacturing operations. Philips’ value chain is mainly based on an aggregate of NO. They have decentralized R&D centers and had constantly tried to shift the balance back and forth between PDs and NO. Finally they decided to create business units responsible for profits. In essence,
these business units hold the value chain for each product. However this business unit can probably leverage the sales organization that is spread around the globe. As a result of decentralized structure, Philips’ strengths could be genereated from powerful and autonomous national organizations (NOs). However, this also lead to a lack of companywide strategic cooperation among NOs and accountability in NO/PD matrix. Philips’ management method, which is controlled by technical and commercial consensus makes it slow to response to different situations in business.Besides, Philips also faced with inefficient production due to local production centers. On the other hand, Mashushita pursued a centralized strategy and product divisional structure. Matsushita, for the majority of its life span, was highly focused on central management and Japan based product divisions. The central R&D got it’s resources from the product divisions. The international operations were traditionally just local manufacturing to overcome import / export obstacles. The main components and knowledge was always Japanese, most of the value stays in the headquarters.The highly centralized services that Mashushita based on has limited the opportunities for product development to be implemented freely because subsidiaries for these activities are too dependent on parent company. In addition to that, communications between overseas subsidiaries and parent company are also obstacles hindering the development capabilities of Mashushita. 3.2.
Comparison of the two organizations attempts to shift their strategies
Significant attempts of Philips includes: giving PDs product management responsibilities, shifting power from NOs to PDs; closing inefficient options and focusing on the 4 core: components, consumer electronics, lighting, & telecommunications, shifting focus to efficient, specialized, multi-market production facilities to get economy of scale in product and try to compete on price advantage, reducing basic research budget to 10% of R&D to get R&D to be more market oriented. During the process of shifting its strategies, Philips had to deal with NOs’ resistance because they don’t want to lose their power. Besides, while focusing too heavily on standardization, Philips had ignored market demands for segmented products, higher consumer service. Company also had to pay an expensive price for cutting 37% officers in R&D, leaving few technical staff who understood high technology. Changing a company culture is incredibly difficult, and changing that of an international company is even harder. It seems that Philips is finally turning the tide and just beginning to get the cooperation necessary to get the scale from their investments in research and manufacturing. Unfortunately, because of all the cost-cutting they needed to do while they tried to get there, they seem to have lost much of their competence in R&D. Success in consumer electronics requires constant innovation and efficient manufacturing, and while manufacturing is beginning to improve, their innovation is now lacking. For Mashushita, their main strategic activities consist of investing in R&D partnership and technical exchanges off shore, transferring international headquarters to overseas regional offices, disbanding product division structure (closed 30 out of 133 factories in Japan), establishing Panasonic Digital Concept Center in Palo Alto. The only problem they had to struggle with is their strong hierarchal structure making its transition to localization difficult. Matsushita was trying to give more power to its overseas subsidiaries, such as 1982’s“Operation Localization,” what gave local managers more choice over the products they sold and authorization to use more local parts. (Importantly, however, product divisions could overrule a local subsidiary if a particular product was of strategic importance). In 1986, Matsushita relocated several major regional headquarters to North America, Europe and SE Asia from Japan. In the early 90’s, the Japanese market for consumer electronics collapsed, leaving Matsushita with a glut of capacity as prices collapsed. While they shifted some production off-shore, Matsushita was unwilling to restructure its increasingly inefficient domestic production facilities in Japan. By 2000, only 250 of the company’s 3,000 R&D scientists were located outside of Japan, and their latest CEO finally decided to consolidate manufacturing facilities. They were slightly profitable (0.4% in consumer electronics), but losing money on one-time cash
cows TVs & VCRs. Matsushita never really developed a competence in innovation of new products, and their innovation in production seemed to remain largely on the mainland. They were slow to react to the protracted recession in Japan, and as a result lost their edge in manufacturing to other low-cost competitors. While the two strategies are very different, each company experienced great success using their chosen strategy but they also contributed to the precarious positions in which the companies eventually found themselves. 3.3.
Other minor criterias to be compared between Philips vs Mashushita
As specified above are the two main different factors significantly describing how Philips and Mashushita operate their company following different strategies and its consequences. For other minor factors which should also be considered when compare the strategies of Philips and Mashushita, the following table has obtained in-depth comparisons: Philips
Matsushita Factor Condition
- Initial tradition of bolstering education
- Domestic throughout 20th century
- Creation of the Common Market in
- Since 1998, investing in R&D
1968 altered factor s of production (land,
partnerships and technical exchanges
labor, and capital)
abroad
- Not a multi-domestic market anymore Small country, immersed in the European eco-system and constantly exposed to other forces.
- Need to broader sources of innovation - Substantial local market, in a country that isolated from the rest of the world. - Local highly skilled and disciplined
- Small local work force.
work force with life dedication to the
- When Philips become international they
company
have the potential and try to utilize the
- Japanese norm make it hard to change
strength of the different Geographies
the HR structure of the org (Lifetime
they operate in. (Manufacture where it’s
employment)
cheap, R&D where they have talent etc.) - However, European regulations require expensive HR
- Japanese Yen making it hard to export from Japan and creating a need to open factories in cheaper places
Demand Conditions - Growth through post-war boom - Shift to export markets - Earlier picture of emerging foreign - A single market
demand
- New Transistor and circuit-based technologies
- Substantial local demand with high rewards as well as losses when there is a
- Unmet demand.Demand has to come
slowdown.
from other parts of the world.
- Until 2000 centralized strategy with
- Exposed to all market forces and
strong product divisions located in
competition in every single segment.
Japan. - At first, hard to compete in international markets because lack of brand. Later becoming the OEM for other brands (video
Related and supporting industries - Principal agreement with GE in 1919 > World split into 3 spheres of influence - By 1998, JV with Lucent to target “digital revolution” - Improved performance
- A technology exchange and licensing agreement with Philips - Licensing of the VHS format to other local manufacturers - VCR segment ~ 45% of profits
Key restructuring steps - Rein in NOs
- Empower regional operations
- Centralize production
- Local customization of production
- Focus on core businesses
- Combine single product divisions
- Empower global product development
- Tap overseas/external innovation
- Combine product divisions
- Remove historical organizational
- Remove historical organizational structure
structure - Name change to Panasonic
Outcome and difficulties faced - Outcome
- Outcome
Continuing low profit margins
Low profit margins
Competitiveness impacted
Competitiveness impacted
- Difficulties
- Difficulties
Conflicted local loyalties
Culture of lifetime employment
Restructuring for tomorrow using
Organizational resistance
today’s parameters Cost-cutting in key aspects, e.g. R&D
Difficult Japanese economic conditions in 1990s