3Value Chain: Philips vs. Matsushita Team 1Franck Formis, Robert Kong, Vincent Ng, Jameson Slattery, Chuohao Yeo
4Porter’s diamond Philips Matsushita Factor Conditions Initial tradition of bolstering educationCreation of the Common Market in 1968 altered factor s of production (land, labor, and capital)Not a multi-domestic market anymoreDemand ConditionsA single marketNew Transistor and circuit-based technologiesUnmet demandDomestic throughout 20th centurySince 1998, investing in R&D partnerships and technical exchanges abroadNeed to broader sources of innovationGrowth through post-war boomShift to export marketsEarlier picture of emerging foreign demandFactor conditionsThe abolition of internal tariff barriers - R&D agreement with the Chinese Academy of Sciences in 1998achieved in Creation of the Panasonic Digital Concepts Center in CaliforniaFreedom of movementDemand conditions- Opening of 25,000 domestic retail outlets- Matsushita « National Shops » ~40% of appliance stores in Japan in the late 1960s- Foreign demand mainly through OEMs (GE, RCA, Philips, …)
5Porter’s diamond (cont’d) PhilipsMatsushitaRelated and supporting industriesPrincipal agreement with GE in 1919 > World split into 3 spheres of influenceBy 1998, JV with Lucent to target “digital revolution”Improved performanceStrategy, Structure, and RivalryEarly local production facilitiesAutonomous NOsUncoordinated decisionsA technology exchange and licensing agreement with PhilipsLicensing of the VHS format to other local manufacturersVCR segment ~ 45% of profitsHighly centralized operationsHigh dependence of subsidiariesLow competitivenessRelated and supporting industries- Local manufacturers include Hitachi, Sharp, MitsubishiStrategy, Structure, and Rivalrye.g. North America Philips outsourcing under Matsushita VHS - Centralized Research (CRL)License when Philips had V2000 proprietary technology
6Philips value chain Philips Research has labs around the globe R&DComponentsManufacturingMarketing and salesDistributionPhilips Research has labs around the globeAcquired from suppliers. E.g. critical lamp components for LCD panelsOutsourced to low cost nationsMaintain some manufacturing sites. E.g. lighting has sites in 25 countriesSales in more than 60 countriesDo their own marketingUses wholesales, retail stores to distribute productsAlso support limited direct shipments and planningsRed – heavy presence by PhilipsBlue – no or light presence by Philips
7Matsushita value chain R&DComponentsManufacturingMarketing and salesDistributionMainly in-house and centralized, PDCC as an initiative to “outsourced” R&DDepend on third-party to acquire raw materials and components, e.g. steel, plastic, semiconductors etc.Maintain huge amount of manufacturing plants in Japan, Asia and ChinaMainly carry out by subsidiaries located in various countriesCooperation with domestic and overseas mass-scale retailers.Red – heavy presence by MatsushitaBlue – no or light presence by Matsushita
8Value chain comparison Centralized versus DecentralizedPhilips: DecentralizedDepend on National organizations to respond to local market.Moving towards more centralized decision to cut cost and enjoy economies of scaleMatsushita: CentralizedMost decision made by headquarters and product division in Japan; local subsidiaries are mostly sales and marketingMoving towards localization to response better to customer demand and preference, PDCC is one of this initiative.Outsourcing versus in-housePhilips: OutsourcedMost manufacturing are outsourced or offshored to low-cost regions. Mostly retain R&D and sales and marketing only.Matsushita: In-houseDirectly control most manufacturing operations located in Japan, Asia and China
9Challenges faced Philips – Too decentralized Matsushita – Too centralizedPowerful and autonomous national organizations (NOs)Lack of company-wide strategic cooperation among NOsLack of accountability in NO/PD matrixManagement by technical & commercial consensusSlow to respondInefficient production due to local production centersProduct divisional structureHighly centralized servicesCentralized product developmentSubsidiaries too dependent on parent companyCommunications between overseas subsidiaries and parent company
10Key restructuring steps PhilipsMatsushitaRein in NOsCentralize productionFocus on core businessesEmpower global product developmentCombine product divisionsRemove historical organizational structureEmpower regional operationsLocal customization of productionCombine single product divisionsTap overseas/external innovationRemove historical organizational structureName change to Panasonic
11Outcome and difficulties faced PhilipsMatsushitaOutcomeContinuing low profit marginsCompetitiveness impactedDifficultiesConflicted local loyaltiesRestructuring for tomorrow using today’s parametersCost-cutting in key aspects, e.g. R&DOutcomeLow profit marginsCompetitiveness impactedDifficultiesCulture of lifetime employmentOrganizational resistanceDifficult Japanese economic conditions in 1990s
12Philips becoming the leading consumer electronics company Focused on one product rather than diversifying in early daysBecame leader in industrial researchCompetenceIndependent National organizations.adept at responding to country-specific market conditionsBuilt their own technical capabilities to address local market conditionsEnforce market specific researchBusinesses being supported by the research are responsible for the R&D budgetIncompetenceProduct division had no real powerNO ignores main company’s welfare and focuses on local profit (Ex. V2000 case)Too many factories over the worldHigher cost than simply outsourcing or having one area serves the global market
13Matsushita displacing Philips Focused on VCR productionHigh volume allowed them to slash price quicklyLicense VHS format to other manufacturerHighly centralized systemCompetenceHuge number of retail outlets6x the outlets of rival SonyAssured sales volume and direct access to market trends and consumer reactionOne-product-one-division systemInternal competition“Small business” environmentMain company acts as a “bank”
14Matsushita displacing Philips (cont) CompetenceUnder fund the central research laboratoryForce it to compete for additional funding from divisionsGive overseas sales subsidiaries more choice over the products they soldIncompetenceOver-managementExpatriate managers located throughout foreign subsidiariesStrongly-held commitments to lifetime employmentCan not compete with companies who outsource to low-cost Asian countriesProduct divisions were not giving sufficient attention to international developmentOversea subsidiary companies act little more than implementing agents
15New US CE Companies: Apple, Chumby, Kindle, Microsoft, Roku & Tivo R&DComponentsManufacturingMarketing and SalesDistributionEach firm is involved in product design and development.Investments both in hardware and software R&D to differentiate their products.Leverage the R&D investments of component suppliers such as Intel, Nvidia, Samsung and others.Each firm develops and controls the SW “components” of their product stack.Each firm makes use of third-party HW components (processors, memory, discrete components, batteries, etc.).Apple acquired PA Semi and is now developing its own chips for iPhone, iPod and potentially Macs.All firms make use of contract manufacturers and/or ODM partners.Partners include:AsusCelesticaFlextronicsFoxconnQuantaWistronEach company manages the branding, advertising and positioning of its products.Tivo makes use of distribution relationships with cable and satellite providers to market and sell its products and services to end users, in addition to Tivo’s direct marketing and sales initiatives.Apple’s distribution is heavily skewed toward direct (online, company-owned retail stores).Chumby is primarily available through online distribution – both direct and w/ partners.Kindle is primarily directXbox 360 through nearly all online and physical retail establishments.Roku & Tivo through direct and major online and physical retail. Tivo also distributes through DirecTV, Comcast, etc.
16Apple in the MP3 MarketApple designs and controls the major consumer touch points in the MP3 marketDevice HW and SW, PC SW, and distributionFocus on ease of use and HW & SW eleganceApple has permeated the retail channels with iPodsAdvertising focus that drives demand & replacementDesign as a differentiatorDRM as a lock-in
17Philips & Matsushita in the MP3 Market Any competitor is unlikely to unseat Apple by doing the same as Apple or making iterative improvementsPhilips and Matsushita should invest in the next generation of music consumptionPrepare for the demise of the music-only deviceShift to cloud-based subscription services available anytime to countless types of devicesExplore business models of giving away the music to undermine Apple’s current business model
18Changes at Philips More efficient production Concentrate production in International Production CentersSupplies multiple NOs worldwideShift production to low-cost regionsOutsourcingLink product development to marketPD management moved to most competitive product marketsR&D budget provided by supported businessesRein in NOsPDs have formal product management responsibilityConsider input from NOs, but have final decisionShare re-purchase
19Changes at Philips (cont’d) Focus on core businessesClose inefficient operationsSell non-core businessesRemove historical organizational structureReplace joint technical/commercial leadership with single managementReplace PDs with general divisionsIndividual business units responsible for global profits
20Changes at Matsushita Localization Use of local nationals in key positionsModification of processes to accommodate local equipment, requirements, components, technologiesLocal choice of offered product lineMajor headquarter operations relocated to local regional officesIntegrate Japanese and overseas operationMETC controls all foreign subsidiariesMETC merged into parent company
21Changes at Matsushita (cont’d) Tap overseas/external innovationAcquisition of innovative overseas companiesDevelop technology overseas and externally through partnerships and exchangesDe-centralizationMulti-product divisions to have control over multiple product plantsMarketing performed by National/Panasonic
23Philips Vs Matshuita Team 2: Jon Wiesner, Rachel Simon, David ExpositoCossio, Yanpei Chen, EmrehanKirimli
24Porter’s Diamond: consumer electronics industry Japan: Centralized companies. Reluctance to delegate activities. Process innovation rooted in culture. Huge local rivalryNetherlands: Decentralized companies. Low local rivalryJapan: highly demanding and sophisticated internal buyers. Huge market.Netherlands: small internal market. Internationalization needed to survive.Structure, Strategy, RivalryFactor ConditionsDemand ConditionsJapan: Highly skilled labor force. Large number of engineers. Highly efficient production process. Traditions deeply rootedNetherlands: Highly unionized industry. Expensive workforce. Entrepreneurial culture. Small Country located in centre of Europe. Both countries large expenditures in R+DRelated and Supporting IndustriesJapan: Large number of supporting industries: transportation, copiers, cameras, audio, appliances, musical instruments…Netherlands: medium/high number of supporting companies: canon, HP, TomTom, …
25Value Chain Comparison SupplyOperationsDistributionMarketingServicesPhilipsRaw materialsLightingPartsDAPCEMedical SysManufacturingLightingDAPCEAssemblyMedical SysRetailLightingDAPCEHospitalMedical SysOne Philips brandMedical SysMatsushitaRaw materialsComponentsHome AppPartsAVCMEWManufacturingComponentsAVCHome AppMEWRetailAVCHome AppMEWOEM & Self UseComponentsMerge brands into PanasonicComparisonPhilips actively consolidating suppliesMatsushita heavy focus on manufacturingBoth are mainly retail with some enterpriseBoth do brand consolidationPhilips trying to move in this direction
26Competencies/Incompetencies Philip’s SuccessHow they became leader: developed national organizations (NOs) that were independent, and specialized in local market demand for specific and diverse technologies.CommonMarketCompetencies/IncompetenciesFragmented product line (no economies of scale)Adaptive to diverse markets/Slow to marketStrong R&D funding/Poor global strategyStrong National Organizations/Technologies lost in market flooded by competitorsReputation for quality/Loss of market shares to low wage outsourcing competitorsCommitment to employees/
27Competencies/Incompetencies Matsushita’s SuccessHow they became leader: global scale approach of rapidly bringing a emerging technologies to saturate the market1989 crashCompetencies/IncompetenciesResistance by employees to structural changeStrong culture, visionary leader/Weak on innovationFast [follower] to market/Excess capacityBroad product line/High overheadStrong distribution system,high retail presence/Dependant on center; loss of talent due to perceived overbearing topCentralized Japanese structure/
28Change 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 barriersPhilipsHistorical: legacy of WWII and decentralization of operationsCultural: strong cultural ties to EindhovenOrganization: matrix organizational structure constantly between PD and NO reorganizedManufacturing: late to outsource manufacturingProfitability: low margin business leaves little room for errorTechnological: big bets on losing technologies and standardsStructural and Macroeconomic: high cost of layoffs of European workersMatsushitaCultural: lack of independent thinking by overseas subsidiariesOrganization: legacy of product division structureEmployees: tradition of lifetime employmentManagerial: highly centralized management styleTechnological: over-reliance on declining products (TVs, VCRs, etc.) and lack of innovationStructural and Macroeconomic: economic malaise in Japan starting in the 1990s
29Mp3 Player Market vs. What has allowed Apple to succeed? or Zune by MicrosoftWhat has allowed Apple to succeed?relaxed, casual, collegial environment with high-work ethicemphasize on innovation and design (teams all over the world)User Experience Architect’s Office was established to make Apple products easier to useWhat should Philips and Matsushita do to compete?focus on innovative physical appearance and user interfaceadd features like wireless sharing, games, etc. which iPod does not havedesign more than just a player, also offer software platform that allows music to be shared from PCs and other devicespartnership with companies to gain more youth population (ex: Samsung & Adidas vs. iPod & Nike )or Samsung and Adidas
31Philips vs. MatsushitaTeam 3: Gonzalo Baez Silvio Filho Brian Gawalt Ryan StanleyMBA290G, Oct 8, 2008
32Comparison of Porter’s Diamond Factors Factor ConditionsBoth 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 ConditionsJapan 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 IndustriesBoth countries have national access to companies to suppliers in chemical and other equipment or machinery industries for production.The Netherlands includes robust research institutionsCluster development in Japan related to consumer electronics and semiconductors.Firm Strategy, Structure, and RivalryCluster development in Japan indicates fierce domestic rivalry. 8 of the top 10 companies in the field are Japanese.Government stability and context has been a major help to Philips as the Netherlands benefits from its central waterways, advanced neighboring economies, and political stability.
33Value Chain ContrastMFGWare-house and direct salesIn-houseOutsourcedDistribution centers, retailersEnd customerCustomer serviceR&DMFGDirect and online SalesIn-houseOutsourcedDistribution centers, retailersEnd customerCustomer serviceR&DPhilips had a decentralized approach for manufacturing and sales.Matsushita had nearly everything centralized in Japan. Marketingcompetitive advantage over manufacturing.
34Changes in Market Leadership Post-war Philips rose to dominance through strong R&D, technical development, and ability of national organizations to independently structure market offeringSmall national market instigated robust export function and global sales and marketing forceVital research facilities and top management transferred overseas as WWII approachedWWII destroyed factories, so chose to rebuild on strengths of National OrganizationsIndependence of management to actAbility to sense and respond to differences in national demands of countries of operations related to marketingTake advantage of surrounding talent and cultures for independent technical capabilities as wellDeveloped strong competency in R&D and technical developmentLacked 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 andPanasonic succeeded Philips in global dominance through central planning, strategic manufacturing choices, and a strong system of controlsOpened 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.Developed competency in long-term planning, low-cost manufacturing, and being quick-to-marketLacked strong independent R&D near global marketsStrategy for more regional control was hard because of ingrained culture and tight controls. However, implementing “Outsourced R&D” through incubators helps overcome Panasonic’s lagging innovation by supporting start-ups without difficult cultivation of in-house expertise.Market ConditionsPenetrate UK with rental businessFurniture-encased vs sleek modelsElitist prejudice againstTVTechnical CapabilitiesCanada for color TVAustralia stereo TVUK TVs with teletext
35Apple’s keys to success in MP3 market Corporate cultureOrganizational structureApple 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 & iTunesRebel 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.
372008 Philips vs. MatsushitaChristian HuthLakshmi JagannathanChristopher QuekDaisuke TanakaJohn Michael Wyrwas
38Firm Strategy, Structure & Rivalry Philips challenged with independent national organization focusing on R&DFactor ConditionsDutch legislation prevents hostile raidsBureaucracy leads to slow-moving transformation of companyCEO succession hinders continuous development of strategyFirm Strategy, Structure & RivalryOriginal competitive leadership by commercial and technical functions (PD/NO matrix) was succeeded simpler and structured marketing and manufacturing organizationOriginal worldwide portfolio of responsive national organizations increases manufacturing costs (start of outsourcing)Strong industrial researchSupporting IndustryTechnology-sharing agreements and offshore manufacturing shall lead to reduced costsDemand ConditionsAdoption to local markets by independent national organizations in marketing as well as in product development
39Firm Strategy, Structure & Rivalry Matsushita with centralized organization and strong manufacturing capabilitiesHigh value-add per hour in manufacturingLow labor costs in developing countries where parts of manufacturing is outsourcedEarly trade-liberalization enabled Matsushita to start export businessFactor ConditionsFirm Strategy, Structure & RivalryWorldwide business based on centralized, highly efficient organizations in JapanShift to local sourcing over time, but still in control of output (quality, productivity etc.)Expats spreading company culture and technologies“Operation Localization” - Internationalization including manufacturing abroad and increasing independence from Japan (but still dependent)Supporting IndustryLow shipping rates reduces logistics costsR&D partnerships and technical exchanges as well as outsourced R&D (VC, incubator and technology partnerships)Dynamic new digital networking technologies and business models enabled by internet lead to pressureDemand ConditionsJapan as home market as early technology adopterWorldwide information of local demand provided by expats
40Philips Value Chain Inbound Logistics Operations Philips has many suppliers (255+) around the world, but they have a close connection with all of themSupply Management plays a key role in value creation, and 74% of Philips spend on suppliers is now centralized or center-led.The‘Partners for Growth’ strategic supplier relationship management program brings Philips together with its top 30 suppliersGlobal 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)OperationsLow Cost Country Sourcing in China: main supply base and manufacturing centerOther 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
41Philips Value Chain Research and Development Marketing and Sales $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 lightingMarketing and SalesPhilips sells its products using dedicated sales representatives, telephone (to big customers), ODMs, OEMs, retail, website, and indirect channelsPhilips 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/advertisingSales organizations in more than 60 countriesServiceCustomer Support is very specialized since Philips’ products cover many areas24 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 SystemsSpecific product-based FAQs and online support along with phone support
42Matsushita Value Chain Inbound LogisticsMatsushita 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 priceIt 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 componentsOperationsMain Manufacturing center and operations in JapanOverseas, Matsushita plans to expand its manufacturing bases, particularly in South China and Vietnam, in response to rising demand for components and devices.Matsushita’s international business operations is risky because of political instability as well as cultural and religious difference.
43Matsushita 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 divisionsSome Areas of Research: Full HD plasma TVs, Blu-ray disc (BD) recorders, and Energy Efficient/ Eco Friendly ProductsMarketing and SalesSells to small customers, individual customers, and big industriesPromotes ‘environmentally friendly’ productsSells 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 customersServiceCustomer Support is very specialized since Matsushita’s products cover many areas24 Hour Support for Consumer Electronics (such TV, portable electronics, etc)24 Hour Professional Support and Business Support for its small customers24 Hour Support Specific to OEMs and its industrial customers/productsSpecific product-based FAQs, manuals, and online support along with phone support
44Philips in the post-war era CompetancesIncompetancesProtected company resources through war by transferring abroadStrong, self-sufficient national organizationsProduct development and industrial design responds to regional customer preferencesDecentralized marketing and salesInnovative R&DWeak control of national organizations by Netherlands-based product-divisions created conflicts in company strategyLocal production plants could not take advantage of economies of scaleInability to capitalize on R&D
45Matsushita – Competitive Analysis Matsushita was able to displace Phillips as the leader in Consumer Electronics by:Successfully capturing the advantages of localization and avoiding the management difficulties that other global companies encountered.Leveraging its corporate structure to bring new technologies to market more efficiently than its competitors.Implementing manufacturing best practices to keep manufacturing costs low despite differences in regional inputs.Outsourced core R&D needs to better recognize new marketable technologies and business models that were congruent with Panasonic’s Global Strategy.
46Matsushita – Core Strengths 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.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.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.
47Matsushita – Core Weaknesses Power of the Central Organization:The power exerted by the central organization limits regional innovations.R&DThe 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.
48Organizational Changes: Philips Different standards and consumer preferences across countries led Philips to give power to the NOsSuccessful until Common Market eroded trade barriers1970sPD>NODecrease SKUs, build scale, and increase flow of goodsCreate International Production CentersSlow implementation and NOs continued to have power1982Shut inefficient operationsOff-shore manufacturing alliancesFocused on core operationsSales declined and profits stagnated
49Organizational Changes: Philips 1987Goal: increase profits and beat the JapaneseStrategically linked core businessesRestructured around 4 core global divisionsLinked PDs with their marketsHalved spending on basic research to 10% of R&DHuge cuts in plants and employeesLoss of $2.5 billion and a shareholder’s lawsuit1990Cut 22% of workforceSold various businessesExpand software, services, and multimediaFocused on developing 15 core technologiesLow morale and lack of focus on new market demands for segmented products and higher consumer service
50Organizational Changes: Philips 1996“No taboos; no sacred cows”Slashed 3,000 jobs in N AmericanAdded 3,000 jobs in AsiaHuge cutsRelocated headquarters to AmsterdamBet on “digital revolution”Focus on marketingAchieved objective of a 24% return on net assets2001Outsourced mobile phone productionSeeks to sell off manufacturing of mass-produced itemsFocused on developing 15 core technologiesLoss of 2.6 billion euros. Become a technology developer and global marketer?
51Organizational Changes: Matsushita Yamashita (Operation Localization)4 localizations: personnel, technology, material, and capitalIncreased number of local nationals in key positionsOverseas sales subsidiaries given more choice over products they soldExpressed displeasure with lack of initiative of TV plant in CardiffTaniiObjective: obtaining software source for its hardwareAcquired MCA for $6.1 billionJapan went into recession, and Tanii forced to resignMorishita“simple, small, speedy, and strategic”Cut staff and decentralize responsibilitySold MCA to Seagram at a $1.2 billion lossChallenges: Korean and Chinese competition; strong yen=weak exportsIncrease offshore R&D: Panasonic Digital Concepts Center in California
52Organizational Changes: Matsushita NakamuraFrom “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 structureStreamlines plants: now integrated into multi-product production centersStreamlines marketing divisions: Panasonic and NationalFirst losses in 30 years accelerated: Matsushita seen as a takeover target
53The Apple Slide Vertical integration R&D Manufacturing Steve Jobs First to offer excellent hardware, software, and content – iPod and iTunesSuccessfully convinced content providers to allow sale of mp3R&DIdea was not internally developed, but execution wasStrong collaboration with Portal Players who did bulk of the software and hardware developmentManufacturingOutsourced all manufacturingSteve JobsGenius CEO with a visionInvolved in unusually detailed aspects of daily business
55Philips vs Matsushita Group 5: Varun Boriah Sonia Fereres Dilip Joseph Brendan QuinnAda Zheng
56Porter’s Diamond for Philips vs Matsushita Factor Conditions Geographic location: small country situated in central EuropeInitial workforce deeply involved in technological development in appreciation for firm’s strategy of investing in education, housing, improvement of workers conditions locally.Expensive local laborMatsushitaGeographic location: immersed in Asian marketSkilled, relatively low cost resources
57Porter’s Diamond for Philips vs Matsushita Demand Conditions Limited domestic market pushes international growthClose to local market needs & opportunities due to decentralization (NOs)MatsushitaLarge & highly demanding Asian market for consumer electronics
58Porter’s Diamond for Philips vs Matsushita Related & Supporting Industries No cluster effectLack of domestic competitorsMatsushitaCluster effect: development of Japanese consumer electronic industry & competition
59Porter’s Diamond for Philips vs Matsushita Firm Strategy, Structure & Rivalry Decentralization, local management & diversificationProduct specialization (light bulbs) extend technological advantage to other productsDual management system: National Organizations (NOs) and Product Divisions(PDs)MatsushitaHigh quality, low cost, standardized products mass productionHighly centralized organizational structureRivalry with other Japanese CE industries (e.g. Sony in Betamax vs. VHS)
60Internal Product Value Chain CentralizedDecentralizedPhilips: Decentralized Organization + 1 Product SpecializationMatsushita: Centralized Hub Organization + Mass ProductionProduct DevelopmentSales & MarketingResearchManufacturingServicesCentralized initial research & innovationMultinational / Decentralized management, product development, manufacturing, sales and customer services through PDs, NOs within national/local markets.Product DevelopmentSales & MarketingResearchManufacturingServicesCentralized operations: research, innovation & product development. Expat managementLocal subsidiaries
61How 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?CompetenciesIncompetenciesLightingCassettes / CDsCentralized Research and Innovation: quickly develop new productsOrganizational asset: NOs to develop products in individual national marketsMoved research facilities abroad in anticipation of the warLow profit margins (1-2%)Fragmented management/poor global strategySlow bringing products to market (Matsushita beat them to microwave etc)Dispersed manufacturing/marketing/ services within nations (NOs)
62How did Matsushita success in displacing Philips as No. 1 How did Matsushita success in displacing Philips as No. 1? What were its distinctive competencies and incompetencies?CompetenciesIncompetenciesAbility to mass product at low cost, quick to marketVCR manufacture – including OEM for Philips and othersPlacement of Japanese expat managers in international plants, strong communication with HQLocal autonomy to meet targetsShifted production to overseas markets (e.g. China) when Japanese currency strengthened“Fast follower” strategyCentralised R&D in JapanNot highly innovativeComplex management processesExcessive control of R&D (Motorola TV)
63What 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?PhilipsMatsushitaFocus on R&D (after sacking 37% of R&D staff?!)Large bets on technologies that failed (DCC, CDi, mobile)Hasn’t yet outsourced much of its productionStill very decentralizedWhy is it so hard: Working against years of inertiaCreated PDCC – strengthened convergence portfolioOutsourcing innovation – universities, PDCCReduced size of HQ – less top-heavyOutsourcing some productionStill very centralized!
65Corporate culture and organizational structure at Apple Apple originally outsourced :iPod idea (Tony Fadell)iPod hardware development (PortalPlayer)Windows compatible through MusicMatch and later iTunesEcosystem createdProduct Marketing and Product Management executed by the same teamApple is vertically integrated: OS, SW/HW, retail storesPut Silicon Valley on the mapHard-working yet corporate-casual environment.Apple’s success based on how they add value to a “cool & simple” design, whole ecosystem around it and easy-to-use interface.
66What should Philips and Matsushita do to compete new features price erosionReduce retailer and manufacturer inventorychannel management shifts from classic distribution to retailers, to broadband providers, to online, to direct to consumer.digital content will shape their hardware demandboth 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
71Philip’s Internal Product Value Chain Late 19th century, early to mid 20th century, mid to late 20th centuryR&DManufactureMarketingSales/ DistributionPhysics and chemistry labs built to address problemsHighly centralized in EindhovenOverseas joint ventures created to gain market placeExported into diverse markets, i.e. Japan, Australia, etcIndependently performed by NOs with PDs as nominal formal research departmentIndependently performed by NOs, with PDs as nominal formal production departmentIndependent NOs were able to sense and respond to different markets efficientlyIndependently performed by NOs with PDs as nominal formal global distribution departmentSuperior technological innovations from PDNOs made their own decision of product mix and which technology standard to adoptInconsistency within the organization makes marketing a weak point in PhilipDecentralized distribution around the globeCentralized lab doing research on specific business areasReorganized structure led to specialized, multi-market production facilities worldwideRefocused on marketing rather than technology; made worldwide marketing plan as a wholeRestructured distribution network work as a whole again
72Matsushita’s Internal Product Value Chain Early to mid 20th century, mid to late 20th centuryR&DManufactureMarketingSales/ DistributionCRL took care of basic technology while product development occurred in product divisionOne-product-one-division: production was done by product divisionsOne-product-one-division: marketing was done by product divisions25,000 domestic retail outlets opened to obtain sales volume and customer information as wellLife time research team: R&D team moved with products from central labs to product division to production plantWent internationally to search for low-wage countries, i.e. countries in Southeast Asia and Central and South AmericaWith corporate treasury as a commercial bank
73Phillips in post war era Phillips built post war era organization withNational Organizations (NOs) overseaProduct Divisions (PDs) at head quarterCompetenciesLocal knowledge of market NOs - Can response quickly to local demandIn house R&D - Leader in industrial labs, both Physics and ChemistryIncompetenciesNo clear line to define role of NOs and PDsBureaucracy - NOs and PDs conflictsSlow to bring new product to marketSeries of bad decisions - from various CEOsCentralize to core business & acquire related companies too lateDead technologies - V2000, CD-I, DCC, analog HDTVI
74Matsushita’s competencies and incompetencies Cost advantagesEnhanced ProductivityCost advantage of Japanese after WW2Shifting basic manufacturing to AsiaCaught up with foregoing companiesLearn the strengths of othersAdopted the divisional structureGiving each division clearly defined profit responsibility for its productFoster internal competitionAdoptedg VHS of JVC instead of BetamaxIncreased capacity and reduced price: accounted of 30% of total saleIncompetenciesLaying off employees is relatively difficult in JapanStrong influence of the founder, Konosuke MatsushitaI
75Changes of Philips and Matsushita Objectives:Phillips – Establishing effective system and organization to compete in the global markets, especially with Japanese rivalsMatsushita- Effective internationalization with global expansion of the businessesImplementations:Phillips -focused on core business by selling some businesses but made lots of bad decisions, Turmoil at top levelMatsushita – Localization was fostered but the system centralized to the Japanese headquarter was remainedImpact:Phillips – Small positive effects on performanceMatsushita – Localization effort supported the global business expansionI
76Bureaucracy (esp. Philips) Why hard to change?Long historyEstablished corporate culture and tradition (e.g. Seven Splits of Matsushita)Bureaucracy (esp. Philips)Strong influences on the founder (esp. Matsushita)I
77The 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.
78Apple has dominated the MP3 marketplace with 80% market share 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.
79What 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.
81KC Chen (Team 7) Anthony Goodrow Andrew Liao Piyapat Tantiwong Sha Tao Philips vs. MatsushitaKC Chen (Team 7)Anthony GoodrowAndrew LiaoPiyapat TantiwongSha TaoOctober 8th, 2008
82Philips: Porter’s Diamond Decentralized Centralized (tilting from NOs to PDs )Single product Diversified Divest non-core businessesR&D driven Localized manufacturing OutsourcingFSDCR&SIFCCaring of workers founded highly skilled labor forces and strong technological baseHolland’s small size forced the company to be internationalLowered trade barrier prompted to local, single site productionRich R&D resources in UK and US helped the company to diversify its assets (research labs) and resources
83Matsushita: Porter’s Diamond Centralized Decentralized (tilting from PDs to balanced NO/PD matrix)Many products, good distribution Localized MFG and R&DVery good at time-to-market, not always a pioneerHierarchy weakened organizational transformationFSDCR&SIFCLowered domestic post-war growth and saturated distribution channels forced company to exportStrong yen prompted overseas productionLack of English capability required more staff (expatriate managers)High value electronic components
84Philips: 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)IPCPDPDPDPower StruggleCommunication link brokenNONONO
85Matsushita: Internal Value Chain Parent company in Japan has tight control over all divisions (DIV)Basic technology at central research laboratory (CRL)ParentHDQCRLNo information exchangeR&D underfunded, divisions compete for fundingDIVDIVDIVDIV
86Comparison of Internal Product Value Chain Both companies started from highly centralized organization.Philips decentralized their organization based on geographic locationMatsushita decentralized product divisions, controlled by Japanese parent companyThe organizations reflected culture in such countriesPhilips (Holland) gave more freedom to NOsMatsushita (Japan) has tight control over Divisions.Philips’ competitive advantage & disadvantageNOs can easily customize their products to different marketsLittle communication between NOs and weak control from PD led to repeated developments of same technologyMatsushita’s competitive advantage & disadvantageCentral research organization to help leverage basic technology across all divisionsEach division has strong understanding about customers, but tightly controlled by parent companyBoth 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
87Philips as CE leader In the post World War II era Strong Research & Development effortsEarly 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 distributionIndependent National OrganizationsAnother 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 OrganizationsHowever, 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.
88Matsushita displaces Philips as CE leader Link divisional structure to a global strategyAutonomous National OrganizationsCommunicationsThe autonomy of the divisions linked together through a global strategy enabled Matsushita to displace Philips as the leading consumer electronics company in the world.Matsushita linked their divisional structure to a global strategy through the company vision and 250-year plan. Sales grew quickly and Matsushita licensed the format to other manufacturers and adopted an OEM policy, locking manufacturers into the VHS format and made the VHS format the industry standard. Philips was not longer able to compete with Matsushita and fell behind due to the very autonomous National Organizations that made them successful in the first place. Furthermore, all top managers had been with Philips for the majority of their careers and many had worked at other National Organizations during foreign tours of duty. Since the National Organizations controlled assets and resources and the Product Divisions were located great distances from the National Organizations, the National Organizations often undercut the formal role of research and development that was the responsibility of the Product Divisions. Despite Philips numerous technological innovations (audiocassette, V2000 video cassette format), the autonomy of the National Organization made it difficult for Philips to bring these products to market on a global scale.Communication ensured that product group directions fit with the national strategies and priorities.As Philips competitors moved production of electronics to low-wage areas (East Asia, Central America, South America), Philips’ country-level subsidiaries were not able to run global-scale production runs.Ultimately, 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.
89Competencies & Incompetencies MATSUSHITAPHILIPSCompetenciesNational responsivenessTechnology-driven innovationEntrepreneurial NOsCentral research and fundingIncompetencies Slow technology to marketPoor global strategyCompetencies Global scale efficiencyMarket-driven rapid innovationInnovative PDsLinkages in the value chainIncompetencies Overseas subs not innovative
90Philips: Company Changes, Implementation, and Impact ObjectiveImplementationImpact1970sRebalancing the managerial relationship between PD & NOs.SlowNOs seemed as powerful and independent as ever.1982To deal with least profit units and the slow-moving bureaucracyBuy & sell business and continue to tilt the matrix between PD & NOsSales declined and profits stagnated.1987To deal with the revenue declining and maintain the market positionRelocate the management and close/integrate the business divisionsPresident and senior management were replaced1990To deal with the risk of bankruptcyCost-cutting & lay-off. New focus on the software, service and multimedia.Ignored the new worldwide market demand1996To stop bleedingShut down/sold un-profit units and to bet on the digital revolution.24% ROA2001To increase sales and revenueOutsource the manufacturingHope to build efficiency into its global operations
91Matsushita: Company Changes, Implementation, and Impact ObjectiveImplementationImpactKM’s wayMaintain Central controlOrganization since the company beganStrong Centralization and de-incentivized localizationOperation LocalizationInnovative capability & entrepreneurial initiativesPersonnel, technology, material, capitalNearly no changes on the way branches operateIntegration & expansionTo put more attention on the international developmentMerge METC to parent company to fully integrate domestic and overseas operationsNot succeed and due to economic downturns, Tanii was forced to resignMorishitaTo deal with Japan’s downturn & to enhance R&D abilitiesMove production overseas and start joint venture with foreign academicsDelivered a sign that he gave up looking for innovation internallyNakamuraTo transfer Matsushita from manufacturing to services to meet customersDestruction and creation program to make flatten the hierarchyAlmost made Matsushita to be takeover
92New U.S. CE CompaniesAppleTiVoRokuChumbyKindleMicrosoft
93Position in Value Chain Tivo, Roku, and ChumbyAll 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, KindleBoth 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 Amazon’s online services.MicrosoftMicrosoft 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).
94How can Philips and Matsushita compete with Apple? Target niche marketsTech-savvy users who desire more featuresChange the gameCombine technologies (iTune & HDTV)
96Philips vs. Matsushita MBA 290G Prof. Charles Wu Team 8 Fuat E. CelikGopal ChaudhooryIgnacio ContrerasFrancois GalletCamilo Mendez
97Porter’s Diamond Firm Strategy, Structure and Rivalry Factor PhilipsRegionalized focus – independent managementFunctional division (Biz vs Engineering)Not-invented-here cultureGovernment protectionismMatsushitaCentralized focus – dependency on headquartersBusiness line divisionCopycat / follower cultureGovernment encourages competitivenessFirm Strategy,Structure and RivalryFactorConditionsDemandConditionsPhilipsEuropean countries’ heterogeneity encourages customization to local markets (distributed approach)Expensive labor focuses companies in product differentiation strategiesPhilipsHeterogeneous European cultures leads to differences in demandHigh income fosters desire for differentiated / tailored productsRelated andSupporting IndustriesPhilipsUnderdeveloped ecosystem derived from lack of competition (world divided between GE and Philips)MatsushitaJapanese geographical isolation promotes focus in domestic market (centralized approach)Cheap labor (pre-70’s) focuses companies in cost-cutting strategiesMatsushitaBig but isolated domestic market drives focus in local marketLow income in Japan (per-70’s) cultivates low-cost strategiesPopulation eager to adopt new techMatsushitaDeveloped ecosystem derived from intense competition (Sony, JVC, Sanyo, etc)97
98Porter’s Diamond Analysis Philips’ strategyIn-house innovation and market differentiationMatsushita’s strategyCentralized approach with focus in cost advantage and “copied but better” productsWorldwide consumer electronics demand ended being:HomogeneousPrice consciousMatsushita was far more prepared for this scenario:Follower takes advantage of cost benefitsCentralization builds economies of scale98
99Internal Product Value Chain Philips – Market differentiationResearch(centralized)Development(Market A)Production(Market A)Commercialization(Market A)Development(Market B)Production(Market B)Commercialization(Market B)Development(Market C)Production(Market C)Commercialization(Market C)Development(Market D)Production(Market D)Commercialization(Market D)Matsushita – Cost advantage based on EOSResearch(centralized)Development(centralized)Production(centralized)Commercialization(Market A)Commercialization(Market B)Commercialization(Market C)Commercialization(Market D)99
100Philips Emerged as a World Leader Forced by the War, Philips divided operations into several quasi-independentNational Organizations (NOs)Highly decentralized NOs were efficient and competitive within the market they servedAutonomous corporate subdivisions had too high a stake in self-preservation and prevented real restructuring reformNOs’ focused on country-specific markets and adapted quickly to local market conditions and consumer tastes and expectations – e.g. TVsCommon Market system removed advantages of regional specialization, increased importance of manufacturing cost competitionThe GoodThe BadOutstanding research division led to strong technical innovation and new product developmentNOs thwarted centralized product development by pursuing independent agendas – e.g. V2000 video cassetteThe UglyDecentralization leads to organizational inertia and the company is slow to react to changes in market conditions in a World economy
101Matsushita Overtook Philips Matsushita dominated its home market by offering thousands of products at its tens of thousands of retail locationsCorporate culture valued low cost and high profit operations and held each division accountable for meeting goalsHigh degree of centralization stifled innovationCentralization led to cost-competitiveness, which led to exports reaching a world marketManufacture needed to relocate to cheaper labor markets to stay competitive, while devotion to domestic employment weakened restructuring effortsThe GoodThe BadMatsushita was quick to adopt standards, allowing it to achieve high sales volumes on products it would otherwise struggle withWeak R&D efforts and expenditure led to undifferentiated products and commoditization, which led to shrinking marginsThe UglyMatsushita is now forced to look outside the company and outsource its innovation in the hopes of developing differentiated products and more profitable ventures
102Philips reorganizes its activities, focusing on its core competencies ObjectivesIncrease profitabilityDrive costs down to get back in the competitionImplementationFocus on core competencies (technology development and marketing)Simplification of the networkOutsourcing of manufacturing activities to AsiaImpactFairly good financial impact in the 2000sHuge loss of human capital
103Matsushita is moving up the value chain ObjectivesBecome a leader in technology developmentMitigate the R&D risksImplementationIncrease of the investments in internal R&DCreation of the PDCC: investment in external R&D (open innovation leader)ImpactExternal growth or “Spinning-in”Increased dependency on external factors
104Copying Apple’s Strategy: making the best of an existing technology Vertically integrated structureControl of the value chainFew high-quality appealing and trendy products based on existing technologiesCasual corporate culturePretty flat organizationFostering individual excellence
106Team 9 James An Zishan Khan James Su Boaz Ur Philips vs. MatsushitaTeam 9James AnZishan KhanJames SuBoaz Ur
107Porter’s Diamond Factor conditions Philips Matsushita 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 it’s cheap, R&D where they have talent etc.)However, European regulations require expensive HR.MatsushitaSubstantial 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 companyJapanese 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 open factories in cheaper places.
108Porter’s Diamond Demand conditions Philips Matsushita Demand has to come from other parts of the world.Exposed to all market forces and competition in every single segment.MatsushitaSubstantial 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)
109Porter’s Diamond Related and supporting industries PhilipsDepend 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 RivalryBeing an innovator.Diversification of products.Philips is a multinational company it is even hard to define it as Dutch.MatsushitaBeing a fast follower – Matsushita – CopycatUntil 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
110The Value ChainsPhilips 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 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.
111How did Philips Lead? Competencies Self-sufficiency allowed ability to respond to country-specific market conditionsProduct 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 managementDevelopment of elite expatriate managers that can represent country-oriented views
112How did Philips Lead? Incompetency's Inability to boost production levels to increasing global demandProduction 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 (Philip’s V2000 videocassette, superior to Matsushita’s VHS, but was outsourced, branded, and sold by North American Philips under license from Matsushita)The history of strong individualized NOs resisted reorganization
113How did Matsushita overtake? CompetenciesMatsushita 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. Motorola’s TV business. Philips’ product development differed between national organizations.Matsushita was faster at getting products to market than Philips.Incompetency'sIn the 1990’s, Matsushita’s management was unwilling to restructure some of its inefficient production facilities in Japan. This was due to the company’s deeply-rooted commitment to lifetime employment.
114Change is difficult Philips Matsushita 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.MatsushitaMultiple 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.
115Apple’s SuccessGreat Marketing FirmDistribution Channels include Apple Store’sUse of iTunes as a reverse “razor and blade” modelStylish product designAbility to recognise opportunities to commoditise productsStrong company culture and shared visionCentral Product Designer and Leader (Steve Jobs)
117Philips versus Matsushita Team 10Anirban SenRaluca ScarlatElihu Luna-ThomasYilun(Alan)
118Porter’s Diamond-Philips Factor ConditionsAmong largest producer of light-bulbGeographically diversified research facilities and local tech talents, managersTrade barriers and tariffs—forced to build local production facilitiesDemand ConditionsExpansion to Europe, Asia, US, etc., capture world market shareDiversification of product rangeSupporting IndustriesGlobalizing product development and productionStrategy, Structure, & RivalryWrote 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 businessOutsource most of manufacturing and become technology developer(2001)Rivalry: GE, Japanese counterparts, and other local competitors
119Porter’s Diamond-Matsushita Factor ConditionsHighly skilled work forcePost war rebuilt, pro-businessCost rise in 1960s in JapanDemand ConditionsPost war boomExport --> global leadership through VCRsDomestic market demand collapsed(1999)Supporting IndustriesFast “copycat”Offshore innovationsStrategy, Structure, & RivalryFirst to adopt divisional structure, internal competition(spin off hungry spirit)Strong centralization gradually weakened (Operation Localization)Rivalry: GE, Sony, Philips, etc. China, Korea
120Value Chain Invest Capture Demand Solution & Delivery Support Global SuppliersTech SupportDomestic, Asia, US, EuropeIndividual, Business, GovernmentExpansionGlobal AssemblyServiceGlobal LogisticsBoth have vertical integration across the value chain and are international corporations. Both produce consumer electronics with cutting edge technologies.R&DStrategySales & MarketingDistribution
121Philips success after the war Operation based on National Organizations (nearly autonomous subsidiaries around the world)Responsive to country-specific market necessitiesGeographically diversified research facilities brought several technological breakthroughsNO’s keep the Phillips traditional internal competence (Production vs. Sales)Effective in a world of close frontiers
122Phillips 60’s-90’s struggles Competitors relocating production in low cost of labor regions (South Asia and Central and South America)Inability to align the interests of powerful NO’s, where each manager represented the particular interest of his regionSeveral failed endeavors to globalize production and R&DA bureaucratic organization that could not follow the pace of its Japanese counterpartsPainful process of shutting down plants, get rid of some business units, outsource some manufacturing, re-orient company’s main focusPhillips becoming a research, developer and marketer. A lost battle to be an efficient manufacturer.
123Matsushita’s SuccessMatsushita 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.
124Matsushita’s strengths Diverse offerings from early in the company’s 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.
125Matsushita’s 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.
126Philips: 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.
127Matsushita: 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.