Philips versus Matsushita The Competitive Battle Continues Case Solution

1. How did Philips become leading Consumer Electronics Company in the world? Based on what distinctive competencies? What role the Philip’s administrative heritage played in its success/failure?

Philips was established as a light bulb factory in 1892 by Gerard Philips and his father, which was made into a world class electronics producing company over time. The focus of this company was only on the production of light bulbs from the startup of the company. Innovation and creative technological changes were an important part of Philips production process. 1899 was the year in which it decided to enter into the export manager through the hiring of an export manager. In 1912, it started to expand considering the size of its production house. Philips operated on the principle of National organizations. It made a spate national organization to cater a particular country in order to meet the demands of that country in a resourceful way. There were different types of national organizations in Germany, United States and United Kingdom, focusing on a different point of competitiveness i.e. increase in advertisement, production according to consumers taste and technological advancements. Companies are mostly known by their parent company, but Philips was known for the country it operates particularly i.e. Philips of Canada introduced the first color television and Australian Philips manufactured the first television with stereo. Philips has created its brand loyalty and consumer awareness over a period of time. Competitive advantage of this company is that Philips is known for the technological advancements and intense focus on R&D department.

Philips administrative heritage included organizational matrix in 1971, which was highlighted by the organizational members as a process with many disadvantages. Least efficient product divisions were planned to be shut down in order to increase the efficiency of national organizations managers. Afterwards, the businesses of Philips were divided among the categories of core and no core businesses. Core businesses included consumer electronics, electronic parts, telecommunications and information systems. Non core business included medical equipments and domestic electronics. Product divisions were being strengthened in order to cope up with the strength of national organizations of the company. Product divisions were also linked directly to the markets in a mission to make them efficient and competitive in nature. In 1994, Timmer, the new president of the company presented a growth strategy which focused on the increase in revenues of the company by 40 percent in 6 years.

2. How did Matsushtia succeed in displacing Phillips? Based on what distinctive competencies? What role has Mastsushtia administrative heritage played in its success/failure?

Matsushita was established in 1918 with an investment of 100 yen only. Its prime purpose was to manufacture doubles ended electricity sockets for domestic use. The company extended its production expertise in lamps powered with batteries, irons and radio sets. After the era of war, Matsushita introduced a new range of products ranging from television sets, transistors, ovens by 1960. Five thousand products were on the category section of Matsushita in the late 1960’s which amounted to 40 percent of the electronics outlets of Japan as whole. The company was able to cope with a large amount of sales volume and enabled it to learn and enact the market trends in order to plan for the future. Matsushita was famous to copy the latest technology available in the market in an effective way giving it a name of ‘copycat’ in electronics market. Its fast pace gave the company competitive advantage over the others, and its ability to replicate a new technology was unmatchable in electronics industry.

Matsushita initiated its export business through black and televisions in 1950. It expanded to colored televisions. In 1974, Motorola television was acquired by Matsushita in order to expand its television business throughout the United States of America. Similarly, invent of VCR technology led the company to be the market leader in 1980’s. During this time period, Matsushita was able to give license of VHS format to the market leaders including Phillips. VCR sales accounted for 30 percent of the total sales of the company. Network of the company was spread in a way that they informed the parent company in two possible ways:

1. Direct communication with product division

2. Communication with an independent legal entity of the company.

Subsidiary companies were being looked after by expatriate and subsidiary managers; both communicating the message of Matsushita philosophy to the subsidiary companies.

Matsushita expanded throughout the period of 1950’s to present. Administrative heritage has the matter of expansion common on every stage of company’s management change. Each CEO had the vision to excel in the field of electronics and introduce the latest technology in the market. Expansion and technological advancement were the two key lessons learnt from the administrative heritage of the company.

3. What recommendations would you make to Gerald Kleisterlee, to Eumio Ohtsubo?

Gerald Kleisterlee joined Phillips in 2001 when the company was facing great losses in the form of decrease in share prices. Stock prices fell from $60 to $13 decreasing the value of a share by $47. This was the stage where company could face a bankruptcy situation or another company acquiring it. However, Kleisterlee can take the company out of its current situation by the process of restructuring, and lighten the burden of the company’s manufacturing section. Outsourcing is an optimum option for products such as Philips mobile and VCR production. Several other products like television and CD players can also be outsourced in order to maintain the budget of the company. Laying off employees would help but it should be avoided. Investment schedule can be restructured, and the portfolio should be revised to invest in profitable and low risk businesses. Company divisions can be reduced in order to increase the focus and organization around the markets. The company should focus on medical equipments, lighting and consumer products because of their level of profitability as compared to the other divisions.

On the other hand, Eumio Ohtsubo joined Matsushita in 2006 when the company was performing very well as compared to its previous performance. He joined the company on the vision to pass the profits of Samsung i.e. 9.4 percent of margin. Ohtsubo is suggested to take the risk of re-branding of the company in order to make it a global brand rather than a Japanese brand. He should overview the operations of company’s overseas plants and make sure they are working at an optimum level to cope up with the financial crisis worldwide. Considering the crisis, he has to close down the inefficient plants working globally. However, he should consider expanding the company after recession phase is over, and introduce advanced technological innovations in order to make the company a market leader in electronics industry. Technology can play a vital role in taking the company out of recessionary phase as it can make the production efficient and the products popular among consumers. Electronic equipment is about technology, and Matsushita (Panasonic) should focus entirely on it.