3. COMPARISON OF PHILIPS VERSUS MATSUSHITAPhilips and Matsushita are among the largest consumer electronics companies in the world. Their success was based on two contrasting strategies. It seems that Matsushita and Philips had adopted two cultural extremes in their organizations; Matsushita with a highly centralized operation that dictated global operations, Philips a conglomerate of similar businesses with little central coordination. Both realized that they needed to adopt the best practices from the other company. In a mass-market like consumer electronics, this would mean a strong central organization that could develop standards for emerging technologies in order to develop economies of scale for production, yet has the flexibility to adapt the standards to fit the desires of local markets.3.1. Value chain comparisonPhilipsMashushita

Centralized versus Decentralized

Decentralized:-Depend on National organizations to respond to local market.

-Moving towards more centralized decision to cut cost and enjoy economies of scale.Centralized:- Most decision made by headquarters and product division in Japan; local subsidiaries are mostly sales and marketing- Moving towards localization to response better to customer demand and preference, PDCC is one of this initiative.

Outsourcing versus in-house

Outsourced: Most manufacturing are outsourced or offshored to low-cost regions. Mostly retain R&D and sales and marketing only.

In-house: Directly control most manufacturing operations located in Japan, Asia and China

As compared above, the main challenges that two company is facing significantly show the pros and cons of different strategy they set for their company: While Philips strategy decentralized so heavily and based on outside resource, Mashushita appeared to be too centralized with its in-house manufacturing operations. Philips value chain is mainly based on an aggregate of NO. They have decentralized R&D centers and had constantly tried to shift the balance back and forth between PDs and NO. Finally they decided to create business units responsible for profits. In essence, these business units hold the value chain for each product. However this business unit can probably leverage the sales organization that is spread around the globe. As a result of decentralized structure, Philips strengths could be genereated from powerful and autonomous national organizations (NOs). However, this also lead to a lack of company-wide strategic cooperation among NOs and accountability in NO/PD matrix. Philips management method, which is controlled by technical and commercial consensus makes it slow to response to different situations in business.Besides, Philips also faced with inefficient production due to local production centers.On the other hand, Mashushita pursued a centralized strategy and product divisional structure. Matsushita, for the majority of its life span, was highly focused on central management and Japan based product divisions. The central R&D got its resources from the product divisions. The international operations were traditionally just local manufacturing to overcome import / export obstacles. The main components and knowledge was always Japanese, most of the value stays in the headquarters.The highly centralized services that Mashushita based on has limited the opportunities for product development to be implemented freely because subsidiaries for these activities are too dependent on parent company. In addition to that, communications between overseas subsidiaries and parent company are also obstacles hindering the development capabilities of Mashushita.3.2. Comparison of the two organizations attempts to shift their strategies

Significant attempts of Philips includes: giving PDs product management responsibilities, shifting power from NOs to PDs; closing inefficient options and focusing on the 4 core: components, consumer electronics, lighting, & telecommunications, shifting focus to efficient, specialized, multi-market production facilities to get economy of scale in product and try to compete on price advantage, reducing basic research budget to 10% of R&D to get R&D to be more market oriented. During the process of shifting its strategies, Philips had to deal with NOs resistance because they dont want to lose their power. Besides, while focusing too heavily on standardization, Philips had ignored market demands for segmented products, higher consumer service. Company also had to pay an expensive price for cutting 37% officers in R&D, leaving few technical staff who understood high technology.Changing a company culture is incredibly difficult, and changing that of an international company is even harder. It seems that Philips is finally turning the tide and just beginning to get the cooperation necessary to get the scale from their investments in research and manufacturing. Unfortunately, because of all the cost-cutting they needed to do while they tried to get there, they seem to have lost much of their competence in R&D. Success in consumer electronics requires constant innovation and efficient manufacturing, and while manufacturing is beginning to improve, their innovation is now lacking.For Mashushita, their main strategic activities consist of investing in R&D partnership and technical exchanges off shore, transferring international headquarters to overseas regional offices, disbanding product division structure (closed 30 out of 133 factories in Japan), establishing Panasonic Digital Concept Center in Palo Alto. The only problem they had to struggle with is their strong hierarchal structure making its transition to localization difficult. Matsushita was trying to give more power to its overseas subsidiaries, such as 1982sOperation Localization, what gave local managers more choice over the products they sold and authorization to use more local parts. (Importantly, however, product divisions could overrule a local subsidiary if a particular product was of strategic importance). In 1986, Matsushita relocated several major regional headquarters to North America, Europe and SE Asia from Japan. In the early 90s, the Japanese market for consumer electronics collapsed, leaving Matsushita with a glut of capacity as prices collapsed. While they shifted some production off-shore, Matsushita was unwilling to restructure its increasingly inefficient domestic production facilities in Japan. By 2000, only 250 of the companys 3,000 R&D scientists were located outside of Japan, and their latest CEO finally decided to consolidate manufacturing facilities. They were slightly profitable (0.4% in consumer electronics), but losing money on one-time cash cows TVs & VCRs. Matsushita never really developed a competence in innovation of new products, and their innovation in production seemed to remain largely on the mainland. They were slow to react to the protracted recession in Japan, and as a result lost their edge in manufacturing to other low-cost competitors. While the two strategies are very different, each company experienced great success using their chosen strategy but they also contributed to the precarious positions in which the companies eventually found themselves.3.3. Other minor criterias to be compared between Philips vs Mashushita As specified above are the two main different factors significantly describing how Philips and Mashushita operate their company following different strategies and its consequences. For other minor factors which should also be considered when compare the strategies of Philips and Mashushita, the following table has obtained in-depth comparisons:PhilipsMatsushita

Factor Condition

Initial tradition of bolstering education Creation of the Common Market in 1968 altered factor s of production (land, labor, and capital) Not a multi-domestic market anymoreSmall country, immersed in the European eco-system and constantly exposed to other forces. Small local work force. When Philips become international they have the potential and try to utilize the strength of the different Geographies they operate in. (Manufacture where its cheap, R&D where they have talent etc.) However, European regulations require expensive HR Domestic throughout 20th century Since 1998, investing in R&D partnerships and technical exchanges abroad Need to broader sources of innovation Substantial local market, in a country that isolated from the rest of the world. Local highly skilled and disciplined work force with life dedication to the company Japanese norm make it hard to change the HR structure of the org (Lifetime employment) Japanese Yen making it hard to export from Japan and creating a need to open factories in cheaper places

Demand Conditions

A single market New Transistor and circuit-based technologies Unmet demand.Demand has to come from other parts of the world. Exposed to all market forces and competition in every single segment.

Growth through post-war boom Shift to export markets Earlier picture of emerging foreign demand Substantial local demand with high rewards as well as losses when there is a slowdown. Until 2000 centralized strategy with strong product divisions located in Japan. At first, hard to compete in international markets because lack of brand. Later becoming the OEM for other brands (video

Related and supporting industries

Principal agreement with GE in 1919 > World split into 3 spheres of influence By 1998, JV with Lucent to target digital revolution Improved performance A technology exchange and licensing agreement with Philips Licensing of the VHS format to other local manufacturers VCR segment ~ 45% of profits

Key restructuring steps

Rein in NOs Centralize production Focus on core businesses Empower global product development Combine product divisions Remove historical organizational structure Empower regional operations Local customization of production Combine single product divisions Tap overseas/external innovation Remove historical organizational structure Name change to Panasonic

Outcome and difficulties faced

Outcome Continuing low profit margins Competitiveness impacted Difficulties Conflicted local loyalties Restructuring for tomorrow using todays parameters Cost-cutting in key aspects, e.g. R&D Outcome Low profit margins Competitiveness impacted Difficulties Culture of lifetime employment Organizational resistance Difficult Japanese economic conditions in 1990s