Philips vs. Matshu*****a How Did

Philips vs. Matshu*****a

How did Philips become the most successful company in its business during a period when scores of electrical engineering companies were being formed (e.g. ge, rca, emi, matu*****a)? What did it do better than these others?

Royal Philips Electronics from Netherlands is one of the largest electronics companies of the world and the biggest in Europe enjoying leadership position in electronic products among others. Its workforce is spread over more than 60 countries and sales in the year 2004 were Euro 30.3 billion. (Philips: Company Profile) little delving into the past reveals that the success at Philips during the yesteryears was credited with some of the unique vital discoveries and inventions like the CCDs or charge-coupled devices and LOCOS or local oxidation of silicon. The contribution of Philips towards recording, transmission and reproduction of TV pictures has been immense and its research efforts resulted in the development of the Plumbicon TV camera tube that improved the quality of transmitted picture. Philips' made a pioneering role in the invention of the audiocassette in 1963 and produced the first IC or integrated circuit during 1965 and a streak of new product launches went on throughout 1970s when the name of Philips was a force to reckon with. Its breakthrough research in lighting played a crucial role in development of the energy-efficient lamps. The company also made important step forward in the processing, storage and transmission of images, audio and data that led to the invention of laser vision optical disk, the compact disk and optical telecommunication systems.

During 1997, Philips introduced its DVD systems based on the RISC acronym of Reduced Instruction Set Computing chips. The DVDs gave enhanced image quality and even had the capability to record video signals with the storage capacity of a complete movie on a disc having the size of a standard CD and was able to store five times the data stored on a normal CD. Philips production facilities span more than 40 nations and with sales and service outlets dotting 150 nations. Undoubtedly, it is one of the biggest MNC in the entire globe. Philips success in the early years in the nascent consumer electronics industry in its limited regional market has been due to its globalization in the consumer electronics industry. Eindhoven, the headquarters of Philips had a geographical advantage that the company was able to leverage fully and carry out business with the neighboring companies. During the 1890s, Philips was exporting almost entirely of 97% of its production and with the dawn of the 1900s, Philips had come to be acknowledged as the biggest manufacturers of carbon filament lamps. (Philips: (www.vedpuriswar.org)

2. How was matsu*****a able to overtake Philips in the consumer electronics industry? What distinctive strategic competencies gave it a competitive advantage? What organizational capabilities embedded them?

In case of Matsu*****a popularly known as Panasonic, stealing a march over Philips can be attributed to how cultural disparities shape technological edge. Matsu*****a's achievement was attributed to introducing itself into novel product lines on the basis of persistent learning in spheres of product development, production and marketing. This happened in keeping with the Japanese industry which after acquiring the requisite new technology went on a learning spree by commercializing new products from it, while the Europeans were unsuccessful in accomplishing it. It is quite interesting to note that Philips contributed significantly in supplying the technical capabilities which Matsu*****a applied to commercialize their new products. Then Matsu*****a got the better of Philips and drove Philips out of business. The story of Matsu*****a is a unique one. During the 1950s, Matsu*****a made arrangements to buy the technical capabilities of Philips in exchange for 35% of its equity share. Subsequently, Matsu*****a focused on bettering its functional capabilities in product development, production and marketing.

These learned capabilities facilitated it to launch itself into electronic commercial, industrial and information technology as well. The late 1960s till late 1970s was an epoch making one wherein the Japanese consumer electronics industry spearheaded by Matsu*****a as also Sony who ruled the world markets. At this point Matsu*****a came to be the industry's most successful company in product development, production, and marketing on a global scale. During the later part of 1980s, Matsu*****a together with Sony had wiped both U.S. As well as European consumer electronics companies out of their home turf. Matsu*****a's success can be attributed to its home country -Japan's technological edge and achievements which is unparalleled in the chronicles of industrial history, an especially remarkable performance in a mass production, mass marketing, and high-tech industry. (Gaps in the Historical Record: Development of the Electronics Industry)

The organizational capabilities which were entrenched with to facilitate this leadership position of Matsu*****a was designed to "deconstruct" management structures of the previous century and "build" businesses and products that will lead to future growth. Matsu*****a has set up a new structure based upon distinctly delineated business domains. By this new structure, the company will focus on management resources, quick decision making, develop competitive products and, and setup new businesses surpassing its rivals, thus building a competitive advantage in the marketplace. The first move in the aforesaid restructuring was to convert five of the Group companies into wholly owned subsidiaries during October 2002. Thereafter, reorganization of the complete Matsu*****a Group was made in 14 new business domains. Under the new system of restructuring, business domain enterprises, as customer-focused, independent companies, assume responsibility for all spheres of business in their respective domains, from R&D and manufacturing and sales. Through the process of delegation, Matsu*****a will encourage independent management through each business domain company, therefore gearing up decision-making and facilitating successful distribution of management resources. (Interview with Kunio Nakamura)

3. Why are both companies having such difficulties building the capabilities they both recognize as missing?

However, both the companies have faced difficulties in building the capabilities which they admit as lacking. Philips as well as Matsu*****a in the late 1960s and early part of the 1970s had created learning bases and started to move into global markets. The home market of Philips was limited, however it remarkable learning base shaped the evolution of the consumer electronics in Europe. Matsu*****a and Philips along with Radio Corporation of America and Sony embarked on a hunt to popularize the VCR, which is fallout of the popularity of the TV market. Matsu*****a's Video Home System or VHS conquered the world market on the power of that company's functional capabilities. During the 1990s, Philips's functional capabilities could not face the Japanese competition. Its technical capabilities were diluted by the failure of its endeavor to commercialize its own new video product the CD-interactive or CDi. Thus by late 1990s Philips had no new commercialized product to offer from its stable. (Inventing the Electronic Century)

4. How effectively has matu*****a managed its change agenda of the 1980s and 90s?

Since the 1980s and 1990s the focus of Matsu*****a has been on a new R&D Management System under which it has established not just a technology strategy throughout the company, but a detailed technology business plan as well within every business domain. Matsu*****a will enhance the potential of R&D spending by way of common platform strategy, R & D. management innovation, and an enhanced intellectual properties strategy. In order to improve Matsu*****a's competitive edge from the viewpoint of intellectual properties, the Company's has set up an intellectual property strategy which is tied up with technology and business strategies.

The Company also encouraged patent applications on a regional basis for recently developed technologies. The source of value addition in business has changed from manufacturing to R&D. Matsu*****a has been ensuring opportune return on investments made in R&D by efficient application of common technology platforms, R&D management innovation and an intellectual properties strategy which plays a crucial role in increased product competitiveness and market share. Besides, the company will increase its spending in strategically crucial spheres to derive the maximum out of the value chain from components and devices to finished products, and assure the smooth accomplishment of business strategies. (IR Info Annual Report 2004)

5. What advice would you have for the current CEO of Philips? What do you think of the company's outsourcing plans?

From the middle part of 1990s, Philips focused its attention to the Asian region and planned to spend $2.5 bn on new plants, JVs and takeovers to augment Asia's contribution to the total sales from the present 15% to 25%. Its two focuses have been India and China. During 1997, Philips outsourced its global analogue as against digital TVs headquarters to Singapore and its audio products headquarters to Hong Kong. It will be prudent on the part of CEO of Philips to lay greater emphasis on product features instead of bringing more focus on technology. Actually, it is the distinctive features of the product which appeal more to the consumers instead to the technology itself which has been the main cause for not so impressive results on the part of Philips. Besides, the chief problem with Philips in CTVs has been its premium pricing strategy. The other advice to the CEO would be to stop the attrition of top managers. This had led to a tremendous information gap between the marketing team and the technical team as regards customer needs. Also the company has to look into its labor relations problems with the unions as regards sale of assets. (Philips: (www.vedpuriswar.org)