Philips Electronic Company - Case Study Example

PHILIPS ELECTRONIC COMPANY Introduction Business has entered the era of the one-world market. Increasingly, companies are going overseas to attain sales and profits unavailable to them in their home markets. As a result, every firm, including those with purely domestic operations, is facing increased pressure from foreign competitors. (Bessant, J, R 2001) History of Philips Gerard Philips and his father started it in the year 1892 as a small light-bulb factory in Holland at a place called Eindhoven. Their venture almost failed at the early stage of its operation hence they recruited Anton, Gerard’s brother, who was an exceptional manager and salesman. Philips under new management became the third largest light-bulb producer in Europe in the year 1900. Since the time it was formed it developed a custom of compassionate for its workers. It built many company houses in Eindhoven, promoted education level in the area through sponsorship and it paid its employees so well that other local firms rose complains about these incentives it gave to its employees. Philips went steps further to set 10% of profits aside for its employees in 1912 when it was incorporated. (Bartlett et al, R 2008) Environmental effect on development of Philips In organizational development, environment is the sum of all forces surrounding and influencing the life and development of the firm. These forces can be classified as external or internal. (Bessant, J, R 2001) Moreover management has no direct control over them, though it can exerts influences such as lobbying for a change in a law, heavily promoting a new product that requires a change in a cultural attitude. The external forces are uncontrollable forces. Internal factors These are the controllable forces or elements that the management must administer in order to adapt to changes in the uncontrollable environment variables. They include factors of production (capital, raw materials and people) and the activities of the organization (personnel, finance, production and marketing). In the case study of Philips shared responsibilities and competitive leadership were the cornerstones customs for both commercial and technical functions. The management, that is Gerard (an engineer) and Anton (businessman) began a healthy competition whereby Gerard tried to produce more than Anton could sell and sometimes Anton will want to sell more than what Gerald could be able to produce. (Bartlett et al, R 2008) On the other hand, they came to agree that strong market research was vital to Philips’ survival. The company grew to become a leader in industrial research, which led to creation of labs to undertake production problems. It was from this research where a tungsten metal filament bulb was developed and was a great success since it gave Philips the financial strength to compete against its giant rivals. External factors The external forces are uncontrollable forces and consists the following; (Bessant, J, R 2001) Competition –at its first stage Philips faced stiff competition from its competitors both within and beyond the borders. Majority of which mimicked the legendary operation of Philips two brothers. Most of Philips’ competitors moved production of electronics to new facilities in low-wage areas in East Asia and Central and South America. (Bartlett et al, R 2008) Distributive – besides its subsidiaries, Philips incorporated both national and international agencies available for distributing goods and services. Economic variables-this include unit labor cost, personal consumptions expenditure, this usually influences a firm’s ability to do business. With the prevailing competition Philips was forced to employ manageable human resources who were supposed to posses some technical skills needed in production process. (Bartlett et al, R 2008) The new subsidiaries were expected to report straight to the management board, which Philips had enlarged from four members to ten, this was to ensure that top management remained in contact with and control of the exceedingly autonomous new organizations. Legal-the many kinds of foreign and domestic laws by which international firms/subsidiaries must operate. Philips experienced major challenges on its expansion in other countries because of clashing views and ideas which get used with time. (Bessant, J, R 2001) Political-elements of nations’ political climate such as nationalism forms of government, and international organizations moreover world wars drastically affected business activities of Philips. This was so since Philips’ main market was in Europe, Japan and America the areas which were prone with war. In keenness of the looming war in 1930, Philips decided to transfer its overseas assets to two trusts that is British Philips and the North American Philips firms it also moved most of its vital research laboratories to Red hill in Surrey, England, and its top management to the United States, hence during the war it was more independent and this contributed to efficiency in its operation. (Bartlett et al, R 2008) Technological growth-Technical skills and equipments greatly affect how resources are converted to products. With the advancement in technology Philips was forced to adjust its production level so as to meet the market needs. The company also came to broaden its product line extensively. It began producing electronic vacuum tubes and eight years later its first radios were produced, this made Philips to capture a 20% world market share within a period of ten years and it was thereafter Philips began producing X-ray tubes. Philips entered into the Principal Agreement with General Electric (1919), giving each corporation the right to use other’s patents. Philips controlled Holland, but also both companies agreed to compete fairly and freely in the rest of the world. Hereafter, Philips began developing from a greatly centralized company, whose sales were conducted through third parties, to a decentralized sales organization with autonomous marketing companies around the world. Despite its many technological innovations, Philips’ ability to bring products to market began to falter since its competitors undercharged in the market. Moreover the company invented the audiocassette and the microwave oven in 1960 but let its Japanese competitors capture the mass market for both products. All this made Philips’ financial performance to remain poor and made its global competitiveness to remain in question. (Bartlett et al, R 2008) Changes Philips have made to its international competitive strategy Rebalancing the managerial relationships between PDs and NOs. Investing in a strong brand and consistency in their delivery on their brand promise, in their products, services and actions. (Bessant, J, R 2001) Closing the least efficient local plants and converting the best into International Production Centers. Innovation delivery through investing in world class strength in consumer insights, technological prowess and superior market networks. Increased matrix simplification by replacing both the dual commercial and technical leadership with single management at both the corporate and national organizational levels (Bessant, J, R 2001). Its commitment to sustainability and moreover focus on making the difference in efficient and effective energy use. Developing people’s leadership in talent engagement and aligning them to benchmarking of their performance. Investment in profitable and fast growing business in different geographical regions hence achieving market leadership position. Worked in teams and hence getting opportunity of learning from the best practices of others in the company. Supported technology-sharing agreements and entered alliances in offshore manufacturing. Reducing its size, bringing on directors with strong operating experience, and creating subcommittees to deal with difficult issues. Difficulties of successive management to improve competitiveness The successive management found looming problems in the company and each came up with his own strategies of solving this and giving sound solutions. Majority of this could not meet the prevailing challenges hence the problems persisted despite the tremendous changes that were introduced. For instance the newly appointed CEO Hendrick van Riemsdijk proposed rebalancing the managerial relationships between PDs and NOs when he realized that there was a problem in company’s, this was meant to allow Philips to decrease the number of products marketed, build scale by concentrating production, and increase the flow of goods among national organizations. (Bartlett et al, R 2008) He went further to suggest closing the least efficient local plants and converting the best into International Production Centers, each supplying many NOs. In so doing, he hoped that PD managers would gain control over manufacturing operations. Implementation was slow due to the political and organizational difficulty of closing local plants. (Bessant, J, R 2001) Dr. Rodenburg, the successor of Hendrick van Riemsdijk continued the thrust. He established several IPCs, but the NOs seemed as powerful and independent as ever. He increased matrix simplification by replacing both the dual commercial and technical leadership with single management at both the corporate and national organizational levels. Yet the power struggles continued to restore its glory on the global market. Wisse Dekker who became the CEO was unsatisfied with the company’s financial performance, he outlined a new initiative. Aware of the cost advantage of Philips’ Japanese counterparts, he closed inefficient operations. He then focused on core operations by selling some businesses while acquiring an interest in Grundig and Westinghouse’s North American lamp activities. Dekker also supported technology-sharing agreements and entered alliances in offshore manufacturing. (Bartlett et al, R 2008) To deal with the slow-moving bureaucracy, Wisse Dekker continued his predecessor’s initiative to replace dual leadership with single general managers. He also tilted the matrix by giving PDs formal product management responsibility, but leaving NOs responsible for local profits. And, he energized the management board by reducing its size, bringing on directors with strong operating experience, and creating subcommittees to deal with difficult issues. Finally, Dekker redefined the product planning process, incorporating input from the NOs, but giving global PDs the final decision on long-range direction. Still sales declined and profits stagnated. Assessment of the changing environment 1) External environment Most competitive markets for Philips contributed many challenges to its operation activities. For instance, management of the digital audio tape and electric-shaver product lines were relocated to Japan, while the medical technology and domestic appliances lines were moved to the United States. Such moves, along with continued efforts at globalizing product development and production efforts, required that the parent company gain firmer control over NOs, although Philips had obtained a majority equity interest after World War II, it was not always able to make the U.S. Company respond to directives from the center, as the V2000 VCR incident showed. (Bartlett et al, R 2008) Foreign policy acted as a hindrance to Philips operation, for example in implementing the restructuring process van der Klugt who was a CEO at that particular time knew that this would lead to a financial recovery since losses for that year was estimated to be high. Hence Dutch guilders had to provoke a class-action law suit by angry American investors, who alleged that positive projections by the company had been misleading. This contributed to a surprise move, where van der Klugt and half of the management boards were replaced. 2) Management motives. With the mounting competition. The huge increase in imports, plus massive amounts of foreign investment meant that the firm had to face cut throat competition from everywhere in the world. This increasing internationalization of business demanded managers to have a global business perspective gained through experience, education, or both. That is why Philips tried to employ different management teams. (Bessant, J, R 2001) Reference Bartlett et al, R 2008, Philips versus Matsushita: A New Century, a New Round, Revised edn, page 350. Robbins, SP.Business without Borders. US News and World Report, July 16, 1990, pp.29-31 Bessant, J, R 2001, Managing in a borderless world. Harvard Business review, pp.152-161. Weikins, Mira. R1972, The Emergence of Multinational Enterprise, Cambridge; Harvard university press. Tugendhat, Christopher. R 1980, The Multinationals, New York; Random House. Davidson, J. R 1988, Transnational corporation in world development, New York; United Nation, pp.16-20 Read More