Philips vs.

Matsushita
Assignment
2008 MBA/ENG 290G
International Competition in
Technology
Team 1
Value Chain:
Philips vs.
Matsushita

Team 1
Franck Formis, Robert Kong, Vincent Ng, Jameson Slattery, Chuohao Yeo
 Porters diamond
Philips Matsushita
Factor Conditions
Initial tradition of bolstering education
Domestic throughout 20th century
Creation of the Common Market in
Since 1998, investing in R&D partnerships
1968 altered factor s of production
and technical exchanges abroad
(land, labor, and capital)
Not a multi-domestic market
Need to broader sources of
anymore
innovation

Demand Conditions
A single market
Growth through post-war boom
New Transistor and circuit-based Shift to export markets
technologies Earlier picture of emerging foreign
Unmet demand demand
 Porters diamond (contd)
Philips
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
Strategy, Structure, and Rivalry
Early local production facilities
Autonomous NOs
Uncoordinated decisions
Matsushita
A technology exchange and
licensing agreement with Philips
Licensing of the VHS format to
other local manufacturers
VCR segment ~ 45% of
profits
Highly centralized operations
High dependence of
subsidiaries
Low competitiveness
 Philips value chain

Philips Acquired Outsourced Sales in Uses

Research from to low cost more than wholesales,
has labs suppliers. nations 60 retail stores
around E.g. critical Maintain countries to distribute
the lamp some Do their products
globe componen manufacturi own Also support
ts for LCD ng sites. marketing limited direct
panels E.g. lighting shipments
has sites in and
25 countries plannings

Red heavy presence by Philips

Blue no or light presence by Philips
6
 Matsushita value chain

Mainly Depend on Maintain Mainly Cooperation

in-house third-party huge carry out with
and to acquire amount of by domestic
centraliz raw manufacturi subsidiarie and overseas
ed, materials ng plants in s located mass-scale
PDCC as and Japan, Asia in various retailers.
an componen and China countries
initiative ts, e.g.
to steel,
outsour plastic,
ced semicondu
R&D ctors etc.
Red heavy presence by Matsushita
Blue no or light presence by Matsush
7
Value chain comparison
Centralized versus Decentralized
Philips: Decentralized
Depend on National organizations to respond to local market.
Moving towards more centralized decision to cut cost and enjoy economies

of scale
Matsushita: Centralized
Most decision made by headquarters and product division in Japan; local

subsidiaries are mostly sales and marketing

Moving towards localization to response better to customer demand and

preference, PDCC is one of this initiative.

Outsourcing versus in-house
Philips: Outsourced
Most manufacturing are outsourced or offshored to low-cost regions. Mostly
retain R&D and sales and marketing only.
Matsushita: In-house
Directly control most manufacturing operations located in Japan, Asia and

China
Challenges faced
Philips Too
decentralized
Powerful and autonomous
national organizations (NOs)
Lack of company-wide
strategic cooperation
among NOs
Lack of accountability in
NO/PD matrix
Management by technical &
commercial consensus
Slow to respond
Inefficient production due to
local production centers
Matsushita Too
centralized
Product divisional
structure
Highly centralized services
Centralized product
development
Subsidiaries too
dependent on parent
company
Communications between
overseas subsidiaries and
parent company
 Empower regional
Key restructuring steps
operations
Local customization of
Rein in NOs
Philips
production
Matsushita
Centralize production Combine single product
Focus on core businesses divisions
Empower global product Tap overseas/external
development innovation
Combine product divisions Remove historical
Remove historical organizational structure
organizational structure Name change to
Panasonic
Outcome and difficulties
faced
Philips Matsushita
Outcome
Continuing low profit Outcome
margins Low profit margins
Competitiveness Competitiveness
impacted impacted
Difficulties Difficulties
Conflicted local loyalties Culture of lifetime
Restructuring for employment
tomorrow using todays Organizational resistance
parameters Difficult Japanese
Cost-cutting in key economic conditions in
aspects, e.g. R&D 1990s
Philips becoming the leading
consumer electronics company
Focused on one product rather than diversifying in early days
Became leader in industrial research
Competence
Independent National organizations.
adept at responding to country-specific market conditions
Built their own technical capabilities to address local market conditions

Enforce market specific research

Businesses being supported by the research are responsible for the R&D budget
Incompetence
Product division had no real power
NO ignores main companys welfare and focuses on local profit (Ex. V2000 case)
Too many factories over the world
Higher cost than simply outsourcing or having one area serves the global market
Matsushita displacing
Philips
Focused on VCR production
High volume allowed them to slash price quickly
License VHS format to other manufacturer
Highly centralized system
Competence
Huge number of retail outlets
6x the outlets of rival Sony

Assured sales volume and direct access to market trends and

consumer reaction
One-product-one-division system
Internal competition
Small business environment

Main company acts as a bank

Matsushita displacing Philips (cont)
Competence
Under fund the central research laboratory
Forceit to compete for additional funding from divisions
Give overseas sales subsidiaries more choice over the products
they sold
Incompetence
Over-management
Expatriate managers located throughout foreign subsidiaries

Strongly-held commitments to lifetime employment

Can not compete with companies who outsource to low-cost Asian

countries
Product divisions were not giving sufficient attention to
international development
Oversea subsidiary companies act little more than implementing agents
 New US CE Companies:
Apple, Chumby, Kindle, Microsoft, Roku & Tivo

Each firm is Each firm develops All firms make use Each company Apples distribution is
involved in product and controls the SW of contract manages the heavily skewed
design and components of manufacturers branding, toward direct (online,
development. their product stack. and/or ODM advertising and company-owned
partners. positioning of its retail stores).
Investments both in Each firm makes products.
hardware and use of third-party Partners include: Chumby is primarily
software R&D to HW components Asus Tivo makes use of available through
differentiate their (processors, Celestica distribution online distribution
products. memory, discrete Flextronics relationships with both direct and w/
components, Foxconn cable and satellite partners.
Leverage the R&D batteries, etc.). Quanta providers to market
investments of Wistron and sell its products Kindle is primarily
component Apple acquired PA and services to end direct
suppliers such as Semi and is now users, in addition to
Intel, Nvidia, developing its own Tivos direct Xbox 360 through
Samsung and chips for iPhone, marketing and sales nearly all online and
others. iPod and potentially initiatives. physical retail
Macs. establishments.

Roku & Tivo through

direct and major
online and physical
Apple in the MP3 Market
Apple designs and controls the major
consumer touch points in the MP3 market
Device HW and SW, PC SW, and distribution
Focus on ease of use and HW & SW elegance
Apple has permeated the retail channels with
iPods
Advertising focus that drives demand &
replacement
Design as a differentiator
DRM as a lock-in
Philips & Matsushita in the MP3
Market
Any competitor is unlikely to unseat Apple by
doing the same as Apple or making iterative
improvements
Philips and Matsushita should invest in the
next generation of music consumption
Prepare for the demise of the music-only
device
Shift to cloud-based subscription services
available anytime to countless types of
devices
Explore business models of giving away the
Team 2
Philips Vs Matshuita

Team 2:
Jon Wiesner, Rachel Simon, David
ExpositoCossio, Yanpei Chen,
EmrehanKirimli
 Porters Diamond: consumer
electronics industry
Japan: Centralized companies.
Reluctance to delegate activities.
Process innovation rooted in Structure,
culture. Huge local rivalry Strategy,
Netherlands: Decentralized Rivalry
companies. Low local rivalry
Factor
Conditions
Japan: Highly skilled labor force.
Large number of engineers. Highly Related and
efficient production process.
Supporting
Traditions deeply rooted
Netherlands: Highly unionized Industries
industry. Expensive workforce.
Entrepreneurial culture. Small
Country located in centre of
Europe. Both countries large
expenditures in R+D
Japan: highly demanding and
sophisticated internal buyers.
Huge market.
Netherlands: small internal
market. Internationalization
needed to survive.
Demand
Conditions
Japan: Large number of supporting
industries: transportation, copiers,
cameras, audio, appliances,
musical instruments
Netherlands: medium/high number
of supporting companies: canon,
HP, TomTom,
 Value Chain Comparison
Supply Operations Distribution Marketing Services

Philips Raw materials Manufacturing Retail One Philips Medical Sys

Lighting Lighting Lighting brand
Parts DAP DAP
DAP CE CE
CE Assembly Hospital
Medical Sys Medical Sys Medical Sys

Matsushita Raw materials Manufacturing Retail Merge brands

Components Components AVC into Panasonic
Home App AVC Home App
Parts Home App MEW
AVC MEW OEM & Self Use
Home App Components
MEW

Comparison Philips Matsushita Both are Both do brand Philips trying

actively heavy focus mainly retail consolidation to move in
consolidating on with some this direction
supplies manufacturing enterprise
 Philips Success
How they became leader: developed national organizations (NOs)
that were independent, and specialized in local market demand for
specific and diverse technologies.

Common
Market
Competencies/Incompetencies
Fragmented product line
Adaptive to diverse markets / (no economies of scale)

Strong R&D funding / Slow to market

Strong National Organizations / Poor global strategy

Technologies lost in market
Reputation for quality / flooded by competitors
Loss of market shares to low
Commitment to employees / wage outsourcing competitors
 Matsushitas Success
How they became leader: global scale approach of rapidly
bringing a emerging technologies to saturate the market

1989 crash
Competencies/Incompetencies
Resistance by employees to
Strong culture, visionary leader/ structural change

Fast [follower] to market / Weak on innovation

Broad product line / Excess capacity

Strong distribution system,
high retail presence / High overhead

Dependant on center; loss of talent

Centralized Japanese structure / due to perceived overbearing top
 Change and its Challenges
Both Philips and Matsushita have faced enormous challenges and multiple
reorganizations in trying to manage global operations. Both have tried multiple
organizational structures, but have encountered some of the following barriers

Philips
Historical: legacy of WWII and
decentralization of operations
Cultural: strong cultural ties to Eindhoven
Organization: matrix organizational
structure constantly between PD and NO
reorganized
Manufacturing: late to outsource
manufacturing
Profitability: low margin business leaves
little room for error
Technological: big bets on losing
technologies and standards
Structural and Macroeconomic: high cost
of layoffs of European workers
Matsushita
Cultural: lack of independent thinking by
overseas subsidiaries
Organization: legacy of product division
structure
Employees: tradition of lifetime
employment
Managerial: highly centralized
management style
Technological: over-reliance on declining
products (TVs, VCRs, etc.) and lack of
innovation
Structural and Macroeconomic: economic
malaise in Japan starting in the 1990s
 Mp3 Player Market
vs.

or Zune by
Microsoft
What has allowed Apple to succeed?
relaxed, casual, collegial environment with high-work ethic
emphasize on innovation and design (teams all over the world)
User Experience Architects Office was established to make
Apple products easier to use or Samsung
and Adidas
What should Philips and Matsushita do to compete?
focus on innovative physical appearance and user interface
add features like wireless sharing, games, etc. which iPod does not have
design more than just a player, also offer software platform that allows
music to be shared from PCs and other devices
partnership with companies to gain more youth population (ex: Samsung
& Adidas vs. iPod & Nike )
Team 3
 Philips vs. Matsushita

Team 3: Gonzalo Baez Silvio Filho Brian Gawalt Ryan Stanley

MBA290G, Oct 8, 2008

Comparison of Porters Diamond
Factors
Factor Conditions
Both countries have access to a highly skilled workforce due to local availability of
specialized research and high extent to staff training in each country.
High cooperation yet highly regulated labor relations. Tradition of lifelong
employment in Japan has reduced the risk of brain drain.
Limited natural resources (esp. Japan) induces constant attention to value-add
services.
Institutions in the Netherlands are considered highly efficient, ethical, and
transparent compared to other countries: corporate boards are effective,
government policymaking is transparent, intellectual property protection strong, and
firm behavior ethical.
The Netherlands has highly developed ports and is considered the gateway to
Europe.
Demand Conditions
Japan has a high national demand that includes sophisticated technical users,
whereas Philips had to export early on due to low national demand in the
Netherlands.
Related and Supporting Industries
Both countries have national access to companies to suppliers in chemical and other
equipment or machinery industries for production.
The Netherlands includes robust research institutions
Cluster development in Japan related to consumer electronics and semiconductors.
Firm Strategy, Structure, and Rivalry
Cluster development in Japan indicates fierce domestic rivalry. 8 of the top 10
companies in the field are Japanese.
 Value Chain Contrast
Ware-

End customer
house Distribution
Customer
R&D MFG and centers,
service
direct retailers
sales

In-house Outsourced

End customer
Direct
Distribution
and Customer
R&D MFG centers,
online service
retailers
Sales

In-house Outsourced

Philips had a decentralized approach for manufacturing and sales.

Matsushita had nearly everything centralized in Japan. Marketing
competitive advantage over manufacturing.
Changes in Market Leadership
Post-war Philips rose to dominance through strong R&D, technical
development, and ability of national organizations to independently
structure market offering
Small national market instigated robust export function and global sales and
marketing force
Vital research facilities and top management transferred overseas as WWII
approached
WWII destroyed factories, so chose to rebuild on strengths of National Organizations
Independence of management to act
Ability to sense and respond to differences in national demands of countries of operations related to
marketing
Take advantage of surrounding talent and cultures for independent technical capabilities as well
Developed strong competency in R&D and technical development
Lacked good centralized planning (no advantage from economies of scale) and slow
to market.
Current strategy to move/outsource low-end manufacturing and focus on
design/development makes sense given national and firm competencies. Difficulties
lie in the strength of national organizations and
Panasonic succeeded Philips in global dominance through central planning,
strategic manufacturing choices, and a strong system of controls
Opened plants in low-cost Latin America and Southeast Asia; kept high-value
components in Japan. Allowed outsourcing of minor components. Plants built by
division for economies of scale.
Aggressive management goals encouraged innovation, but one product-one division
led to subsequent spin-off and strict focus.
Overseas operations reported to parent through the product division or the Trading
Company.
 Apples keys to success in MP3
market

Corporate culture

Organizational
structure
Apple is vertically integrated, designing its own operating system.

Apple's stated philosophy is to increase investment in R&D.

In-house brands set the standard: iPod & iTunes

Rebel spirit: "It's better to be a pirate than join the navy" .

Intense work ethic and casual/informal structures.

Combines Design and Marketing in one department.

Team 4
 2008 Philips vs.
Matsushita

Christian Huth
Lakshmi Jagannathan
Christopher Quek
Daisuke Tanaka
John Michael Wyrwas
 Philips challenged with independent national
organization focusing on R&D

Factor Conditions
Dutch legislation prevents
hostile raids
Bureaucracy leads to slow-
moving transformation of
company
CEO succession hinders
continuous development of
Firm Strategy, Structure &
strategy Supporting Industry
Rivalry
Original competitive leadership Technology-sharing agreements
by commercial and technical and offshore manufacturing shall
functions (PD/NO matrix) was lead to reduced costs
succeeded simpler and
structured marketing and
manufacturing organization
Original worldwide portfolio of
responsive national organizations
increases manufacturing costs
(start of outsourcing)
Strong industrial research

Demand Conditions
Adoption to local markets by
independent national
organizations in marketing as
well as in product development
 Matsushita with centralized organization and strong
manufacturing capabilities
Factor Conditions
High value-add per hour in
manufacturing
Low labor costs in developing
countries where parts of
manufacturing is outsourced
Early trade-liberalization enabled
Matsushita to start export
business
Firm Strategy, Structure &
Supporting Industry
Rivalry
Worldwide business based on Low shipping rates reduces
centralized, highly efficient logistics costs
organizations in Japan R&D partnerships and
Shift to local sourcing over time, technical exchanges as well
but still in control of output as outsourced R&D (VC,
(quality, productivity etc.) incubator and technology
Expats spreading company partnerships)
culture and technologies Dynamic new digital
Operation Localization - networking technologies and
Internationalization including business models enabled by
manufacturing abroad and internet lead to pressure
increasing independence from
Japan (but still dependent)
Demand Conditions
Japan as home market as early
technology adopter
Worldwide information of local
demand provided by expats
Philips Value Chain

Inbound Logistics
Philips has many suppliers (255+) around the world, but they have a close
connection with all of them
Supply Management plays a key role in value creation, and 74% of Philips
spend on suppliers is now centralized or center-led.
ThePartners for Growth strategic supplier relationship management
program brings Philips together with its top 30 suppliers
Global Supplier Rating System (GSRS) is now operational in all businesses,
resulting in a more professional structural supplier performance
measurement and subsequent improvement actions (84% of Philips
spending went for this last year)
Operations
Low Cost Country Sourcing in China: main supply base and manufacturing
center
Other smaller manufacturing facilities in 25 countries (including
Netherlands, France, Belgium, Hungary, Mexico, Argentina and Brazil)
The Supply Market Intelligence and Services group (SMIS) work closely
together with businesses to identify supply market opportunities around the
world
Philips Value Chain
Research and Development
$2.2 Billion spent on R&D (2007)
Some Areas of Research: Drug Delivery Potential of Microbubbles, Contrast
Agents for Medical Applications, and OLEDs as the future of indoor lighting
Marketing and Sales
Philips sells its products using dedicated sales representatives, telephone
(to big customers), ODMs, OEMs, retail, website, and indirect channels
Philips markets to its big customers (for ex: in healthcare industry) through
its sales force and its small customers (for ex: individual consumers) via
web, TV, and print/advertising
Sales organizations in more than 60 countries
Service
Customer Support is very specialized since Philips products cover many
areas
24 Hour Support for Consumer Electronics (such TV, portable electronics,
etc)
24 Hour Professional Support for its health care products, lighting, and
specialized businesses such as Dictation and Speech Recognition Systems
Specific product-based FAQs and online support along with phone support
Matsushita Value Chain
Inbound Logistics
Matsushita is dependent on the ability of third parties to deliver parts,
components and services in adequate quality and quantity in a timely
manner, and at a reasonable price
It is not dependent on a single supplier, and has no significant difficulty in
obtaining raw materials from suppliers.
In addition to devices/products, Matsushita makes its own components and
devices used in various products ranging from AV equipment and
information and communication devices to home appliances and industrial
equipment.
Works closely with its third party suppliers for timely and quality in the
deliver of its components
Operations
Main Manufacturing center and operations in Japan
Overseas, Matsushita plans to expand its manufacturing bases, particularly
in South China and Vietnam, in response to rising demand for components
and devices.
Matsushitas international business operations is risky because of political
instability as well as cultural and religious difference.
Matsushita Value Chain
Research and Development
$5.6 billion spent in R&D Costs (in 2007)
Develops unique technologies via a high level of cooperation, not only
through in-house production, but also through a sophisticated network of
cooperation among materials, components and devices, and finished
product divisions
Some Areas of Research: Full HD plasma TVs, Blu-ray disc (BD) recorders,
and Energy Efficient/ Eco Friendly Products
Marketing and Sales
Sells to small customers, individual customers, and big industries
Promotes environmentally friendly products
Sells its products using local retailers, phone/online system, retail stores,
and indirect channels (OEMs and ODMs)
Sells its parts and services to the same set of customers
Service
Customer Support is very specialized since Matsushitas products cover
many areas
24 Hour Support for Consumer Electronics (such TV, portable electronics,
etc)
24 Hour Professional Support and Business Support for its small customers
24 Hour Support Specific to OEMs and its industrial customers/products
Philips in the post-war era

Competances Incompetances
Protected company Weak control of
resources through war national organizations
by transferring abroad by Netherlands-based
Strong, self-sufficient product-divisions
national organizations created conflicts in
Product development company strategy
and industrial design Local production plants
responds to regional could not take
customer preferences advantage of
Decentralized economies of scale
marketing and sales
Inability to capitalize
Innovative R&D on R&D
Matsushita Competitive Analysis

Matsushita was able to displace Phillips as the leader in

Consumer Electronics by:
1. Successfully capturing the advantages of localization and avoiding the
management difficulties that other global companies encountered.
2. Leveraging its corporate structure to bring new technologies to market
more efficiently than its competitors.
3. Implementing manufacturing best practices to keep manufacturing costs
low despite differences in regional inputs.
4. Outsourced core R&D needs to better recognize new marketable
technologies and business models that were congruent with Panasonics
Global Strategy.
Matsushita Core Strengths

Core Strengths:
1. Manufacturing:
Globally standard manufacturing processes created economies of scale
(lower costs) and knowledge transfer between different manufacturing
facilities.
Matsushita shifted certain manufacturing processes to low cost
countries, but kept highly technical manufacturing process located in
Japan. This ensured the highest quality at the lowest cost.
2. R&D:
Centralized R&D process where core designs were established and
local offices made feature requests to tailor products to regional
markets.
Underfunded the Central Research Lab to encourage the development
of marketable technologies.
3. Localized (Regional) Autonomy:
Local offices were given the authority to create and execute local
strategies with oversight from the main office.
Regional offices were able to alter products and product portfolios to
meet local demand.
Matsushita Core Weaknesses

Core Weaknesses:
1. Power of the Central Organization:
The power exerted by the central organization limits regional
innovations.
2. R&D
The R&D structure is good at making marketable products but not
good at creating new technologies.
It is a culture of fast follower R&D.
Organizational Changes: Philips

1950s
Different standards and consumer preferences across countries
led Philips to give power to the NOs
Successful until Common Market eroded trade barriers
1970s
PD>NO
Decrease SKUs, build scale, and increase flow of goods
Create International Production Centers
Slow implementation and NOs continued to have power
1982
Shut inefficient operations
Off-shore manufacturing alliances
PD>NO
Focused on core operations
Sales declined and profits stagnated
Organizational Changes: Philips

1987
Goal: increase profits and beat the Japanese
Strategically linked core businesses
Restructured around 4 core global divisions
Linked PDs with their markets
Halved spending on basic research to 10% of R&D
Huge cuts in plants and employees
Loss of $2.5 billion and a shareholders lawsuit
1990
Cut 22% of workforce
Sold various businesses
Expand software, services, and multimedia
Focused on developing 15 core technologies
Low morale and lack of focus on new market demands for
segmented products and higher consumer service
Organizational Changes: Philips

1996
No taboos; no sacred cows
Slashed 3,000 jobs in N American
Added 3,000 jobs in Asia
Huge cuts
Relocated headquarters to Amsterdam
Bet on digital revolution
Focus on marketing
Achieved objective of a 24% return on net assets
2001
Outsourced mobile phone production
Seeks to sell off manufacturing of mass-produced items
Focused on developing 15 core technologies
Loss of 2.6 billion euros. Become a technology developer
and global marketer?
Organizational Changes: Matsushita

Yamashita (Operation Localization)

4 localizations: personnel, technology, material, and capital
Increased number of local nationals in key positions
Overseas sales subsidiaries given more choice over products they
sold
Expressed displeasure with lack of initiative of TV plant in
Cardiff
Tanii
Objective: obtaining software source for its hardware
Acquired MCA for $6.1 billion
Japan went into recession, and Tanii forced to resign
Morishita
simple, small, speedy, and strategic
Cut staff and decentralize responsibility
Sold MCA to Seagram at a $1.2 billion loss
Challenges: Korean and Chinese competition; strong yen=weak
exports
Increase offshore R&D: Panasonic Digital Concepts Center in
California
Organizational Changes: Matsushita

Nakamura
From super manufacturer of products to meeting customer
needs through systems and services
Empower employees to respond to customer needs
Destruction and creation disbanded product division structure
Streamlines plants: now integrated into multi-product production
centers
Streamlines marketing divisions: Panasonic and National
First losses in 30 years accelerated: Matsushita seen as a
takeover target
The Apple Slide

Vertical integration
First to offer excellent hardware, software, and content
iPod and iTunes
Successfully convinced content providers to allow sale of
mp3
R&D
Idea was not internally developed, but execution was
Strong collaboration with Portal Players who did bulk of the
software and hardware development
Manufacturing
Outsourced all manufacturing
Steve Jobs
Genius CEO with a vision
Involved in unusually detailed aspects of daily business
Team 5
Philips vs
Matsushita

Group 5:
Varun Boriah
Sonia Fereres
Dilip Joseph
Brendan Quinn
Ada Zheng
Porters Diamond for Philips vs Matsushita
Factor Conditions

Philips
Geographic location: small country
situated in central Europe
Initial workforce deeply involved in
technological development in appreciation
for firms strategy of investing in
education, housing, improvement of
workers conditions locally.
Expensive local labor

Matsushita
Geographic location: immersed in Asian
market
Skilled, relatively low cost resources
Porters Diamond for Philips vs Matsushita
Demand Conditions

Philips
Limited domestic market pushes
international growth
Close to local market needs & opportunities
due to decentralization (NOs)

Matsushita
Large & highly demanding Asian market for
consumer electronics
Porters Diamond for Philips vs Matsushita
Related & Supporting Industries

Philips
No cluster effect
Lack of domestic competitors

Matsushita
Cluster effect: development of Japanese
consumer electronic industry &
competition
Porters Diamond for Philips vs Matsushita
Firm Strategy, Structure & Rivalry

Philips
Decentralization, local management & diversification
Product specialization (light bulbs) extend technological
advantage to other products
Dual management system: National Organizations (NOs)
and Product Divisions(PDs)

Matsushita
High quality, low cost, standardized products mass
production
Highly centralized organizational structure
Rivalry with other Japanese CE industries (e.g. Sony in
Betamax vs. VHS)
 Centralized
Internal Product Value Chain
Decentralized

Philips: Decentralized Organization + 1 Product

Specialization
Product Sales &
Research Manufacturing Services
Development Marketing

Centralized initial Multinational / Decentralized management, product development, manufacturing,

research & innovation sales and customer services through PDs, NOs within national/local markets.

Matsushita: Centralized Hub Organization +

Mass Production
Research
Product
Manufacturing
Sales &
Services
Development Marketing

Centralized operations: research, innovation & product Local subsidiaries

development. Expat management
How did Philips become the leading consumer
electronics company in the world in the post war
era? What distinctive competence did they build?
What distinctive incompetencies?
Competencies Incompetencies
Lighting Low profit margins (1-2%)

Cassettes / CDs Fragmented management/poor

Centralized Research and
Innovation: quickly develop new
products
Organizational asset: NOs to
develop products in individual
national markets
Moved research facilities abroad
in anticipation of the war
global strategy
Slow bringing products to market
(Matsushita beat them to
microwave etc)
Dispersed
manufacturing/marketing/
services within nations (NOs)
How did Matsushita success in displacing Philips as
No. 1? What were its distinctive competencies and
incompetencies?
Competencies Incompetencies
Ability to mass product at low cost, Not highly innovative
quick to market
Complex management
VCR manufacture including OEM processes
for Philips and others
Excessive control of R&D
Placement of Japanese expat
(Motorola TV)
managers in international plants,
strong communication with HQ

Local autonomy to meet targets

Shifted production to overseas

markets (e.g. China) when Japanese
currency strengthened

Fast follower strategy

Centralised R&D in Japan

What do you think of the change each company has
made to date: the objectives, the implementation,
the impact? Why is the change so hard for both of
them?
Philips Matsushita
Focus on R&D (after sacking 37% Created PDCC strengthened
of R&D staff?!) convergence portfolio

Large bets on technologies that Outsourcing innovation

failed (DCC, CDi, mobile) universities, PDCC

Hasnt yet outsourced much of its Reduced size of HQ less top-

production heavy
Outsourcing some production

Still very decentralized

Still very centralized!
Why is it so hard:
Working against years of inertia Why is it so hard:
Working against years of inertia
Corporate culture and
organizational structure at
Apple
Apple originally outsourced :
iPod idea (Tony Fadell)
iPod hardware development (PortalPlayer)
Windows compatible through MusicMatch and later
iTunes
Ecosystem created
Product Marketing and Product Management executed by
the same team
Apple is vertically integrated: OS, SW/HW, retail stores
Put Silicon Valley on the map
Hard-working yet corporate-casual environment.
Apples success based on how they add value to a cool
& simple design, whole ecosystem around it and easy-
to-use interface.
What should Philips and
Matsushita do to compete
new features price erosion
Reduce retailer and manufacturer inventory
channel management shifts from classic
distribution to retailers, to broadband providers,
to online, to direct to consumer.
digital content will shape their hardware demand
both companies should exploit their competitive
advantages instead of matching each other:
Philips should invest more in R&D and marketing as a way to
compete with Japanese low cost efficiency. Decide on one
structure/strategy instead of changing it frequently.
Matsushita: try to implement change in a more effective way,
communicating more with employees/subsidiaries to improve
innovation. Partner more, think ecosystems, think of the
experience rather than just the product
Team 6
Philips Versus Matsushita
Team 6
Wan-Lin Tseng
Toru Yamagishi
Nuttapong Chentanez
Jim Miller
Ankit Gupta
Philips Porters Diamond
Matsushita Porters Diamond
 Philips Internal Product Value Chain
Late 19th century, early to mid 20th century, mid to late 20th
century

Physics and Highly centralized in Overseas joint ventures Exported into diverse
chemistry labs built Eindhoven created to gain market markets, i.e. Japan,
to address problems place Australia, etc

Independently Independently performed Independent NOs were Independently

performed by NOs by NOs, with PDs as able to sense and respond performed by NOs with
with PDs as nominal nominal formal production to different markets PDs as nominal formal
formal research department efficiently global distribution
department department

Superior NOs made their own Inconsistency within the Decentralized

technological decision of product mix organization makes distribution around the
innovations from and which technology marketing a weak point in globe
PD standard to adopt Philip
Centralized lab Reorganized structure led Refocused on marketing Restructured distribution
doing research on to specialized, multi- rather than technology; network work as a whole
specific business market production made worldwide again
areas facilities worldwide marketing plan as a whole
 Matsushitas Internal Product Value Chain
Early to mid 20th century, mid to late 20th century

CRL took care of One-product-one-division: One-product-one- 25,000 domestic retail

basic technology production was done by division: marketing was outlets opened to obtain
while product product divisions done by product divisions sales volume and
development customer information as
occurred in product well
division With corporate treasury as a commercial bank
Life time research Went internationally to One-product-one- 25,000 domestic retail
team: R&D team search for low-wage division: marketing was outlets opened to obtain
moved with countries, i.e. countries in done by product divisions sales volume and
products from Southeast Asia and Central customer information as
central labs to and South America well
product division to
production plant
 Phillips in post war era
Phillips built post war era organization with
National Organizations (NOs) oversea
Product Divisions (PDs) at head quarter

Competencies
Local knowledge of market NOs - Can response quickly to local demand
In house R&D - Leader in industrial labs, both Physics and Chemistry

Incompetencies
No clear line to define role of NOs and PDs
Bureaucracy - NOs and PDs conflicts
Slow to bring new product to market
Series of bad decisions - from various CEOs
Centralize to core business & acquire related companies too late
Dead technologies - V2000, CD-I, DCC, analog HDTV
I
 Matsushitas competencies and incompetencies
Competencies
Cost advantages
Enhanced Productivity
Cost advantage of Japanese after WW2
Shifting basic manufacturing to Asia
Caught up with foregoing companies
Learn the strengths of others
Adopted the divisional structure
Giving each division clearly defined profit responsibility for its product
Foster internal competition
Adoptedg VHS of JVC instead of Betamax
Increased capacity and reduced price: accounted of 30% of total sale

Incompetencies
Laying off employees is relatively difficult in Japan
Strong influence of the founder, Konosuke Matsushita
I
 Changes of Philips and Matsushita
Objectives:
Phillips Establishing effective system and organization to compete in
the global markets, especially with Japanese rivals
Matsushita- Effective internationalization with global expansion of the
businesses

Implementations:
Phillips -focused on core business by selling some businesses but made
lots of bad decisions, Turmoil at top level
Matsushita Localization was fostered but the system centralized to the
Japanese headquarter was remained

Impact:
Phillips Small positive effects on performance
Matsushita Localization effort supported the global business expansion
I
 Why hard to change?

Long history

Established corporate culture and tradition (e.g.

Seven Splits of Matsushita)

Bureaucracy (esp. Philips)

Strong influences on the founder (esp. Matsushita)

I
 The New US Consumer Electronic Companies:
Apple, Tivo, Roku, Chumby, Kindle, Microsoft
What are their positions in the Value Chain?

New CE companies involved in market analysis,

research & development and product design, i.e. at the
head of the value chain. Maximum value added here
for products like Tivo, Roku or Chumby, which were
quite unique.
Value added at the end too, i.e. distribution and
marketing. Most true for Apple products, given their
aggressive and distinguished marketing style.
Manufacturing generally outsourced to third parties.
 Apple has dominated the MP3 marketplace with 80% market
share. Other major CE manufacturers have failed to date.
With regards to corporate culture and organizational
structure, what has allowed Apple to succeed?

Unique product designs, i.e. having lots of style, though may not
be cheap.
Excellent marketing and branding exercise, to give the appeal of
consumer items as luxury and personality statements.
Own retail outlets, to have more control over launch and
distribution.
Control over music distribution as well, in the form of itunes.
Over all perception of brand very favorable.
More centralized company organization.
And, last but not the least, the importance of leadership cannot
be more emphasized. Sans Jobs, things might be much different.
 What should Philips and Matsushita do to
compete?

Innovative product design, and branding very

essential.
More emphasis on marketing.
Partner with content providers, for easy access to
music and video.
Aggressive product launching and distribution.
Team 7
Philips vs. Matsushita

KC Chen (Team 7)
Anthony Goodrow
Andrew Liao
Piyapat Tantiwong
Sha Tao

October 8th, 2008

Philips: Porters Diamond
Decentralized Centralized (tilting from NOs to PDs )
Single product Diversified Divest non-core businesses
R&D driven Localized manufacturing Outsourcing

FS

Caring of workers Hollands small size

founded highly forced the company
skilled labor forces FC D to be international
and strong Lowered trade barrier
technological base
C prompted to local,
single site
production

R&SI
Rich R&D resources in UK and US
helped the company to diversify its
assets (research labs) and resources
Matsushita: Porters Diamond
Centralized Decentralized (tilting from PDs to balanced NO/PD
matrix)
Many products, good distribution Localized MFG and R&D
Very good at time-to-market, not always a pioneer
Hierarchy weakened organizational transformation
FS

Lowered domestic
Lack of English post-war growth and
capability required saturated distribution
more staff FC D channels forced
(expatriate company to export
managers)
C Strong yen prompted
overseas production

R&SI
High value electronic components
Philips: Internal Value Chain
Tried to strike a balance between product divisions (PD) and national organizations (NO)
Some PDs merged to form international production centers (IPC)
IPC

PD PD PD

Power
Struggle Communication
link broken
NO NO NO
Matsushita: Internal Value Chain
Parent company in Japan has tight control over all divisions (DIV)
Basic technology at central research laboratory (CRL)

Parent
CRL
No HDQ
R&D
information underfunded,
exchange divisions
compete for
funding

DIV DIV DIV DIV

Comparison of Internal Product Value
Chain
Both companies started from highly centralized organization.
Philips decentralized their organization based on geographic location
Matsushita decentralized product divisions, controlled by Japanese parent company
The organizations reflected culture in such countries
Philips (Holland) gave more freedom to NOs
Matsushita (Japan) has tight control over Divisions.
Philips competitive advantage & disadvantage
NOs can easily customize their products to different markets
Little communication between NOs and weak control from PD led to repeated
developments of same technology
Matsushitas competitive advantage & disadvantage
Central research organization to help leverage basic technology across all divisions
Each division has strong understanding about customers, but tightly controlled by
parent company
Both companies tried to reduce the operating cost by locating plants in low-wage areas
as well as outsourcing to contract manufacturers.
Repeated reorganizational changes aimed at increasing revenue and profit margin
Philips as CE leader In the post World
War II era
Strong Research & Development efforts
Early in Philips history, Gerard and Anton Philips agreed that strong research and
development efforts were vital to the Philips success. The importance of research and
development is evident in the physics and chemistry lab that developed a tungsten metal
filament bulb that was a great commercial success enabling Philips to compete against its
giant rivals. In the postwar era, Philips continued this tradition with fourteen product
divisions responsible for development, production and global distribution
Independent National Organizations
Another contributing factor to Philips success is the National Organizations. These
postwar organizations were highly self-sufficient and extremely adept at responding to
country-specific market conditions-a capability that became a valuable asset in the
postwar era.
Communication between National Organizations
However, with the creation of the Common Market in the 1960s, the same National
Organizations to which Philips attributed its postwar success soon became the reason why
Matsushita displaced Philips as the leading consumer electronics company.
Matsushita displaces Philips as CE
leader

Link divisional structure to a global strategy

Autonomous National Organizations
Communications

The autonomy of the divisions linked together through a global

strategy enabled Matsushita to displace Philips as the leading
consumer electronics company in the world.
Competencies & Incompetencies

PHILIPS MATSUSHITA

Competencies Competencies
National responsiveness Global scale efficiency
Technology-driven Market-driven rapid
innovation innovation

Entrepreneurial NOs Innovative PDs

Central research and Linkages in the value chain
funding
Incompetencies
Incompetencies Overseas subs not
Slow technology to market innovative
Poor global strategy
Philips: Company Changes,
Implementation, and Impact

Objective Implementation Impact

Rebalancing the managerial

NOs seemed as powerful
1970s relationship between PD & Slow
and independent as ever.
NOs.
To deal with least profit Buy & sell business and
Sales declined and profits
1982 units and the slow-moving continue to tilt the matrix
stagnated.
bureaucracy between PD & NOs
To deal with the revenue Relocate the management and
President and senior
1987 declining and maintain the close/integrate the business
management were replaced
market position divisions
Cost-cutting & lay-off. New
To deal with the risk of Ignored the new
1990 focus on the software, service
bankruptcy worldwide market demand
and multimedia.
Shut down/sold un-profit
1996 To stop bleeding units and to bet on the digital 24% ROA
revolution.
To increase sales and Hope to build efficiency
2001 Outsource the manufacturing
revenue into its global operations
Matsushita: Company Changes,
Implementation, and Impact
Objective
KMs way Maintain Central control
Operation Innovative capability &
Localization entrepreneurial initiatives
To put more attention on
Integration &
the international
expansion
development
To deal with Japans Move production overseas
Morishita downturn & to enhance
R&D abilities
To transfer Matsushita
from manufacturing to
Nakamura
services to meet
customers
Implementation
Organization since the
company began
Personnel, technology,
material, capital
Merge METC to parent
company to fully integrate
domestic and overseas
operations
Delivered a sign that he gave up
and start joint venture with
foreign academics
Destruction and creation
program to make flatten the
hierarchy
Impact
Strong Centralization and de-
incentivized localization
Nearly no changes on the way
branches operate
Not succeed and due to
economic downturns, Tanii was
forced to resign
looking for innovation
internally
Almost made Matsushita to be
takeover
New U.S. CE Companies

Apple
TiVo
Roku
Chumby
Kindle
Microsoft
Position in Value Chain
Tivo, Roku, and Chumby
All three companies are providing a widget to connect the existing
multimedia entertainment to the internet. They do not have the contents
and the widgets are not really technologically advanced, but the idea to
provide an interface for consumers to enjoy shows or programs is become
increasingly popular. Their products opens new markets for both the
entertainment industry and internet applications.
Apple, Kindle
Both are back up by companies that have already developed strong
product (online books and music) and customer bases. The iPod, iPhone,
and Kindle are new channels to sell Apple and Amazons online services.
Microsoft
Microsoft is the largest OS provider on the PC value chain and is
successfully leveraging its large market share to penetrate into any
possible market, such as online services and gaming consoles (XBox).
How can Philips and Matsushita
compete with Apple?

Target niche markets

Tech-savvy users who desire more features
Change the game
Combine technologies (iTune & HDTV)
Team 8
Philips vs. Matsushita
MBA 290G
Prof. Charles Wu
Team 8

Fuat E. Celik
Gopal Chaudhoory
Ignacio Contreras
Francois Gallet
Camilo Mendez
 Porters Diamond
Philips
Regionalized focus independent management
Functional division (Biz vs Engineering)
Not-invented-here culture
Government protectionism
Factor
Conditions
Philips
European countries heterogeneity
encourages customization to local
markets (distributed approach)
Expensive labor focuses
companies in product
differentiation strategies
Matsushita
Japanese geographical isolation
promotes focus in domestic market
(centralized approach)
Cheap labor (pre-70s) focuses
companies in cost-cutting
strategies
Matsushita
Centralized focus dependency on
headquarters
Business line division
Copycat / follower culture
Government encourages competitiveness
Firm Strategy,
Demand
Structure and Rivalry
Conditions
Philips
Heterogeneous European cultures
Related and leads to differences in demand
Supporting Industries High income fosters desire for
differentiated / tailored products
Philips
Underdeveloped ecosystem derived
from lack of competition (world divided Matsushita
between GE and Philips) Big but isolated domestic market
drives focus in local market
Low income in Japan (per-70s)
Matsushita cultivates low-cost strategies
Developed ecosystem derived from
intense competition (Sony, JVC, Population eager to adopt new
tech
Sanyo, etc)
Porters Diamond Analysis
Philips strategy Matsushitas strategy

In-house innovation and market Centralized approach with focus

differentiation in cost advantage and copied but
better products

Worldwide consumer electronics demand ended being:

Homogeneous
Price conscious

Matsushita was far more prepared for this scenario:

Follower takes advantage of cost benefits
Centralization builds economies of scale
Internal Product Value Chain
Philips Market differentiation
Development Production Commercialization
(Market A) (Market A) (Market A)
Development Production Commercialization
Research (Market B) (Market B) (Market B)
(centralized) Development Production Commercialization
(Market C) (Market C) (Market C)
Development Production Commercialization
(Market D) (Market D) (Market D)

Matsushita Cost advantage based on EOS

Commercialization
(Market A)
Commercialization
Research Development Production (Market B)
(centralized) (centralized) (centralized) Commercialization
(Market C)
Commercialization
(Market D)
 Philips Emerged as a World Leader
Forced by the War, Philips divided operations into several quasi-independent
National Organizations (NOs)

Highly decentralized NOs were efficient Autonomous corporate subdivisions

and competitive within the market they had too high a stake in self-
served preservation and prevented real

The Bad
restructuring reform

NOs focused on country-specific Common Market system removed

markets and adapted quickly to local advantages of regional specialization,
The Good

market conditions and consumer tastes increased importance of manufacturing

and expectations e.g. TVs cost competition

Outstanding research division led to NOs thwarted centralized product

strong technical innovation and new development by pursuing independent
product development agendas e.g. V2000 video cassette

The Ugly
Decentralization leads to organizational inertia and the company is slow to react to
changes in market conditions in a World economy
 Matsushita Overtook Philips
Matsushita dominated its home market by offering thousands of products at its tens of
thousands of retail locations

Corporate culture valued low cost and High degree of centralization stifled
high profit operations and held each innovation
division accountable for meeting goals

The Bad
Manufacture needed to relocate to
Centralization led to cost- cheaper labor markets to stay
The Good

competitiveness, which led to exports competitive, while devotion to domestic

reaching a world market employment weakened restructuring
efforts

Matsushita was quick to adopt Weak R&D efforts and expenditure led
standards, allowing it to achieve high to undifferentiated products and
sales volumes on products it would commoditization, which led to shrinking
otherwise struggle with margins

The Ugly
Matsushita is now forced to look outside the company and outsource its innovation in the
hopes of developing differentiated products and more profitable ventures
Philips reorganizes its activities,
focusing on its core competencies
Objectives
Increase profitability
Drive costs down to get back in the competition

Implementation
Focus on core competencies (technology development and
marketing)
Simplification of the network
Outsourcing of manufacturing activities to Asia

Impact
Fairly good financial impact in the 2000s
Huge loss of human capital
Matsushita is moving up the value
chain
Objectives
Become a leader in technology development
Mitigate the R&D risks

Implementation
Increase of the investments in internal R&D
Creation of the PDCC: investment in external R&D (open
innovation leader)

Impact
External growth or Spinning-in
Increased dependency on external factors
Copying Apples Strategy: making the
best of an existing technology

Vertically integrated structure

Control of the value chain
Few high-quality appealing and trendy products based on
existing technologies

Casual corporate culture

Pretty flat organization
Fostering individual excellence
Team 9
Philips vs.
Matsushita
Team 9
James An
Zishan Khan
James Su
Boaz Ur
 Porters Diamond
Factor conditions

Philips
Small country, immersed in the European eco-system and constantly
exposed to other forces.
Small local work force.
When Philips become international they have the potential and try to
utilize the strength of the different Geographies they operate in.
(Manufacture where its cheap, R&D where they have talent etc.)
However, European regulations require expensive HR.

Matsushita
Substantial local market, in a country that isolated from the rest of the
world.
Local highly skilled and disciplined work force with life dedication to the
company
Japanese norm make it hard to change the HR structure of the org
(Lifetime employment)
Japanese Yen making it hard to export from Japan and creating a need to
 Porters Diamond
Demand conditions

Philips
Demand has to come from other parts of the world.
Exposed to all market forces and competition in every single segment.

Matsushita
Substantial local demand with high rewards as well as losses when there
is a slowdown.
Until 2000 centralized strategy with strong product divisions located in
Japan.
At first, hard to compete in international markets because lack of brand.
Later becoming the OEM for other brands (video)
 Porters Diamond
Related and supporting industries
Philips
Depend on the country the NO is located in. Not related to specific
industries in particular countries.
Complete decentralization. Each NO totally responsible for its results.

Firm strategy structure and Rivalry

Philips
Being an innovator.
Complete decentralization. Each NO totally responsible for its results.
Diversification of products.
Philips is a multinational company it is even hard to define it as Dutch.
Matsushita
Being a fast follower Matsushita Copycat
Until 2000 centralized strategy with strong product divisions and
operations located in Japan.
Making sure that there are loyal Japanese reps in every company around
the globe in senior positions.
Matsushita is definitely a Japanese company
 The Value Chains
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.

Matsushita for the majority of its life span was highly focused on
central management and Japan based product divisions. The central
R&D got its 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.
 How did Philips
Lead?
Competencies
Self-sufficiency allowed ability to respond to country-
specific market conditions
Product development as a function of local market
conditions
- (Philips of Canada first color TV; of Australia first
stereo TV; of United Kingdom first TV with teletext)
Direct and frequent communications between NOs and
top management
Development of elite expatriate managers that can
represent country-oriented views
 How did Philips
Lead?
Incompetency's
Inability to boost production levels to increasing global
demand
Production within the NOs nations, not the low-wage
areas (East Asian, Central and South America in the 1960s)
Lack of centralized marketing strategy (Philips continued
to innovate, but unable to compete effectively to capture
the mass market (e.g. audiocassette and microwave oven)
Disagreements among the NOs and contradiction with
the research arm of Philips (Philips V2000 videocassette,
superior to Matsushitas VHS, but was outsourced,
branded, and sold by North American Philips under license
from Matsushita)
The history of strong individualized NOs resisted
reorganization
How did Matsushita
overtake?
Competencies
Matsushita was more successful in maintaining control over its
national organizations. It did this by having expatriate
Japanese managers, technicians, and advisors in overseas
offices. Philips national organizations operated independently
from the home base.
Matsushita had more focused company-wide effort on
products. Highly centralized R&D operations in Japan
governed direction of research in overseas companies e.g.
Motorolas TV business. Philips product development differed
between national organizations.
Matsushita was faster at getting products to market than
Philips.

Incompetency's
In the 1990s, Matsushitas management was unwilling to
restructure some of its inefficient production facilities in Japan.
 Change is difficult
Philips
Multiple organizational shuffles primarily aimed at becoming
more profitable/efficient and client focused.
Company culture orientated towards R&D rather than
Marketing, difficult to shift focus of existing employees.
Continual cost cutting measures and relocation of HQ affects
the core culture of the firm.

Matsushita
Multiple policies implemented to attempt to decentralise
organisation.
Success in decentralisation difficult due to reluctance to remove
roles from Japan.
Lack of transferring roles resulted in competitors undercutting
the firms pricing structure.
 Apples Success
Great Marketing Firm
Distribution Channels include Apple Stores
Use of iTunes as a reverse razor and blade model
Stylish product design

Ability to recognise opportunities to commoditise

products
Strong company culture and shared vision
Central Product Designer and Leader (Steve Jobs)
Team 10
Philips versus Matsushita

Team 10
Anirban Sen
Raluca Scarlat
Elihu Luna-Thomas
Yilun(Alan)
 Porters Diamond-Philips

Factor Conditions
Among largest producer of light-bulb
Geographically diversified research facilities and local tech talents, managers
Trade barriers and tariffsforced to build local production facilities
Demand Conditions
Expansion to Europe, Asia, US, etc., capture world market share
Diversification of product range
Supporting Industries
Globalizing product development and production
Strategy, Structure, & Rivalry
Wrote down assets rapidly to use new production technology (1910s)
Tradition of caring for workers (1912)
Adapt to country specific market conditions National Organizations(1930s)
Restructure(1987), core business vs. non-core business
Outsource most of manufacturing and become technology developer(2001)
Rivalry: GE, Japanese counterparts, and other local competitors
 Porters Diamond-Matsushita

Factor Conditions
Highly skilled work force
Post war rebuilt, pro-business
Cost rise in 1960s in Japan
Demand Conditions
Post war boom
Export --> global leadership through VCRs
Domestic market demand collapsed(1999)
Supporting Industries
Fast copycat
Offshore innovations
Strategy, Structure, & Rivalry
First to adopt divisional structure, internal competition(spin off hungry spirit)
Strong centralization gradually weakened (Operation Localization)
Rivalry: GE, Sony, Philips, etc. China, Korea
 Value Chain

Invest Capture Demand Solution & Delivery Support

Global Tech
Domestic, Asia, US, Suppliers Support
Europe
Expansion Global
Individual, Business,
Government Assembly

Service
Global
R&D Logistics
Strategy

Sales &
Marketing

Distribution
 Philips success after the war

Operation based on National Organizations (nearly autonomous

subsidiaries around the world)
Responsive to country-specific market necessities
Geographically diversified research facilities brought several
technological breakthroughs
NOs keep the Phillips traditional internal competence (Production
vs. Sales)
Effective in a world of close frontiers
 Phillips 60s-90s struggles

Competitors relocating production in low cost of labor regions (South

Asia and Central and South America)
Inability to align the interests of powerful NOs, where each manager
represented the particular interest of his region
Several failed endeavors to globalize production and R&D
A bureaucratic organization that could not follow the pace of its
Japanese counterparts
Painful process of shutting down plants, get rid of some business
units, outsource some manufacturing, re-orient companys main
focus
Phillips becoming a research, developer and marketer. A lost battle
to be an efficient manufacturer.
 Matsushitas Success

Matsushita had a long term vision (250 year plan). This was very
uncommon for most international companies. The plan was broken
into 25-year stages.
Philips decentralized operations and R&D during WW2 to US and
UK. This gave those organizations autonomy, but also made it
difficult to control them post-war. An example was the development
of V2000 format, but North American Philips adopted VHS which was
a Matsushita standard.
Philips focused on cost cutting through layoffs and selling off various
businesses and R&D units such as integrated circuits. With new
leadership, and new strategies, some of these business units were
needed and not available to Philips in the development of their
strategy. Therefore, Philips was resigned to continue to outsource
even more of their operations and become a technology developer
and a global marketer.
 Matsushitas strengths

Diverse offerings from early in the companys history. This leads to

greater market penetration.
Opened 25,000 domestic retail outlets to distribute the products.
These provided sales volume and access to market trends.
Shifted production earlier than other companies to low-wage
countries in Asia and South and Central America.
Agreed to give up its own standard and adopt the established VHS
format. This prevented a costly standards war. Instead the company
ramped up production to meet its own needs as well as those of
OEM customers such as Philips.
Increased sales volume allowed Matsushita to cut unit price 50%
within 5 years of product launch while continuously improving quality.
Close headquarters-subsidiary relations allowed greater control of
the activities of globally dispersed subsidiaries.
Gave overseas subsidiaries a greater choice on what products they
sold.
 Matsushitas weaknesses

Centralized control of foreign subsidiaries caused some negative

backlash.
Corporate culture of lifetime employment led to inefficient production
facilities. There was resistance to cutting back on manpower and
plant.
Vertical hierarchy within organization. Front line employees were not
empowered to respond to customer needs due to the centralized
organizational structure.
 Philips: Changes
made and impacts
Started out with one product instead of attempting to diversify. As a
result, they had significant innovations in the light-bulb industry.

Started with a centralized structure, but was forced to create

autonomous subsidiaries in US and UK during WW2. This resulted in
some loss of control and power by the central organization.

Did not move as quickly into low wage labor markets and as a result
lost some competitiveness to companies such as Matsushita.

Power struggle between product divisions and national

organizations. Led to divisive strategies as leadership changed. This
in turn led to poor productivity.
 Matsushita: Changes
made and impacts
Started with one product, but quickly diversified and gained domestic
market penetration by the sheer number of product offerings and
retail outlets.
Adopted the product division structure. This organized the company
based on the product lines that were being developed regardless of
location.
Developed and established presence in television market. Expanded
production to low wage countries in Asia and South America and
thus drove prices lower and volume higher.
Adopted VHS standard and began manufacturing and marketing of
VCRs for themselves as well as OEM customers who were their
competitors.
Began de-centralizing their leadership in response to backlash from
local division workforce.