1.

What was Philips trying to achieve by tilting the balance of power in its structure away from

national organization and towards the product divisions? Why was this hard to achieve?

Philips was removing it historical organizational structure towards the new model which Van

Reimsdijk named as “tilting the matrix towards the Product Divisions” in late 1970s. The reason

behind this tilting was that the PDs allow Philips to decrease the number of products marketed,

build scale by concentrating production, and increase the products flows across National

Organizations. Simply, Philips was trying to achieve greater scale economics and lower the costs

by establishing international production centers, which were under the direction of the product

divisions. In doing so, Reimsdijk hope that PD managers would gain control over manufacturing

operations. Another important reason behind this change was to stop duplication of products that

had brought very negative impact on company’s productivity.

Over the four decades of the time started from 1970s, seven chairman experimented with

reorganization the company to deal with its growing problem where Van Reimsdijk proposed the

“tilting the matrix towards the PDs” and succeeded. After that Dr. Rodenburg continued the

journey where several IPCs were established, but the NOs seemed as powerful and independent

as ever. So he further simplified the matrix by replacing dual commercial and technical

leadership with single management at both the corporate and national organization levels. In

1982, Wisse Dekker became CEO and brought a change which was creation of orporate council

to provide more freedom and autonomy to the product divisions. He closed inefficient operation

as he was aware of cost advantage of Philips’ Japanese counter parts. He focused on core

operation by selling peripheral business such welding, energy cables, and furniture making. He

also continued to “tilt the matrix” giving PDs product management responsibility, but leaving

NOs responsible for local profit.

Van der Klugt chairman after Dekker, who had formed four core global divisions rather than the

former 14 PDs (who were responsible for R & D) in order to boosting power of product

divisions. And also terminated U.S Philips trust to take more control over US operation. He

formed a new management committee which replaced the old NO-dominated International

Concern Council. He tried to tilt power towards the product division that was controlled by the

original company. And he succeed to reduce 3000-strong headquarters staff, transferring many of

them to the PDs. He appointed the much more experienced product-line managers to Philips’

most competitive markets in order to strengthens or link PDs more directly to markets.

All steps and efforts were taken in order to create balance between national organization and

product divisions, the goal was not achieved. Some of the reasons behind it could be:

1) The real power was in the hands of Eindhoven bureaucracy and the associates in the national

organization.

2) There was conflicts in local loyalties: Most of the senior managers had come up through the

national organizations. Those managers tended to protect their autonomy, and were loyal to

the national organizations.

3) Restructuring for tomorrow using today’s parameters: Philip’s chairman and managers were

preparing for tomorrow by today’s statistics which turns into wrong analysis. Today’s

parameters might not work for tomorrow’s market.

4) Cost cutting in key aspects: President Jan Timmer asked PD managers to negotiate cuts with

NO managers. They consider the crucial aspect while cutting the cost, such as R&D which at

last result in market failure. Because of driving towards cost-cutting and standardization
Philips it ignore new worldwide market demands for more segmented products and higher

consumer service.