Strategic sketch on Philips vs.

Panasonic| 1

Strategy Diagnosis

On consumer electronics
A Philips vs Panasonic study.

The story starts with the advent of 19th century and its ever changing and evolving industry in the consumer electronics. While the industry grows sharp, many players like Philips boomed their business and afterwards had gone through severe competition from different players globally. Thanks to rapid innovation and the rise of consumerism. Panasonic eventually lead it like an innovator in this business, eventually dropped off from the prestigious league- this time for matured consumerism. This write up tries to draft a strategic dissection on both these companies and their approach towards consumers and their ism!

Write up prepared by: Md Nazmus Shakib

MSc in Economics and Business Administration Copenhagen Business School Class of 2013.

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Contents
Introduction Sense and simplicity Journey-distinctive competencies Incompetence of Philips- a mode of reorganization Panasonic- a new competency pack in the block Incompetency- too much centralist and ethnocentricity! Compare and contrast- Strategic assessment on Philips and Panasonic Recommendations Appendix A: Timeline of Philips and Panasonic, Sales comparison Appendix B: Transnational Assessment on Impact matrix scale References 3 3 4 4-5 5 6 7 8 9

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Is it simple to sense the pulse of consumer? Or do sensing though simplicity give us the ideas of
life- in an ever vibrant consumer electronics industry? We eventually made our plate full of both ideas and simplicity at a time. Has this simplicity been overshadowed by the ideas of life? Too many questions, I know, but needless to say we are talking about both Philips and Panasonic. Truth is we have both simplicity and ideas in the strategic dissection table to judge their dynamism in strategic capability. On top of it we would try to judge them on different active actions in different phases of history. History since the time immemorial writes the event. We are considering the motive of our strategic discussion into following manners:
A. Strategic motives of Philips and its how part of their success and struggle journey. B. Strategic pitch for Panasonic in the realm of dynamism and probing the how part of superseding the veteran giant in the industry. C. Compare and contrast- on the basis of Transnationalism for both companies and the impact of changes in the path of time. D. Finally a clinical suggestion with strategic imperatives for different limbs of both organizations.

Philips and its simplicity journey Back in 1892, a light bulb factory incepted in Eindhoven which in later years became the 3rd largest producer in the whole Europe. Initially it had focused only on one product strategy and later in the first quarter of the 20th century they have pulled their trigger to different territories through different portfolios. The success story has been written for Philips after the WW2 due to some immense cumulative organizational yet quite distinctive strength cited in the consumer electronics industry. Naming them would be as follows: A. Exploiting the strengths of National Organizations Since the beginning Philips had been very much keen to sense the local noise and pulse of the consumers and therefore being concentrated to national organization format-delegating more responsibility in the NOs head and shoulders making them autonomous; which are rare at that moment. Sensing the differences in different markets and catering with the right products had been the single and unique strategic move by Philips. B. Innovation took the toll Since its initiation Philips as an organization has been keeping a pace to strengthen its R&D facilities to come up with innovative products. 14 PDs in Eindhoven and innovation in Australia, UK and Canada for TV had played a significant role for growth at that point of time for Philips. C. Sourcing for more price competitiveness During the 1960s when EMC had opened the door for better business growth Philips didnt lose the battle as surely they had lots NOs in different global locations. But continuous pressure had been surfaced by the roaring competitors mainly from Japan; Philips did exactly the right things in outsourcing the manufactured product through NOs from different labor intensive markets of the world.

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Reorganization as mode of incompetency By 1960 Philips top brass has had actually sensing great problems in the structures and the way of doing things in the company. Speed to market which has been the critical success factors for they have NOs to response things in a quickest possible time; somehow being whistled as a problematic zone in the course of time. Incompetencies that we may find are: A. Autonomous and more responsiveness to Local digests put things into Black hole1 Over the ages Philips has been keen to reap out profits through their NOs model and thus made them autonomous. All these NOs have becoming more responsive to the local market have eventually created a massive attack on the strategic positioning of Phillips product in the market especially in the form of standardization. More effort and more financial leverage made them nonperforming. As a result, for all 7 chairmen after 196, it had been a battle some choice to make a balance in the company through making NOs less powerful, and to some extent a phase out of NOs from different loss prone locations. B. Redundancy is quite apparent Since Philips form the very beginning of their global journey had opted NOs strategy to sense the local consumers and supplying them the product through PDs; the model had been a redundant one which allows both PDs and NOs have discretions of innovation and localization. As a matter of fact, in both locations same operations are performed and extracted result has been the same yet cost the company doubled. Several CEOs had pointed this out and trimmed the verticals which resulted job slash in the end. C. Frequent Changes with inconsistent decision methods applied Looking at the sluggish growth figures each and every chairman from the period of 19602008 they had taken several steps to pull out company from the mess. All they did in coordination is change and what all they missed out is clear and visionary strategic applications. Even some of the CEOs had taken shortcut route of profit by curtailing head counts while others were pretty much confused with the mode of Transnational or multinational operational modes. D. Innovation got the second priority and thus paid dearly In this ever changing consumer electronics industry, innovation in the end determines winning or losing of SOS(%) for any company. Innovation for Phillips had taken the back seat in the era of 1970-1980. When all other competitors were coming up with latest techno advanced gadgets; Philips were trimming their R&D budgets. A significant wrong step at a very crucial time made Philips lost market shares.

Bartlett, C.A. and Ghoshal, S. (1986) Tap your subsidiaries for global reach. Harvard Business Review, Vol. 64, No. 6, pp. 87-94.

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Matsushita the new kit with new competencies in the bloc Matsushita, the Japanese manufacturer in the consumer electronic industry, had started their journey back in 1918. One thing that made it different is its way to look into the business venture; one must say them quite illusionary visioning the future. Competencies that bring Matsushita being distinctive against all in the industry and gain the leadership momentum in 1987, due to: A. Clear defined path of Strategy Matsushita since the beginning of its journey laid down the bricks of strategy into the right formation. From the owner to the next generation it had just transplanted. Their massive 250 year plan says it all; breaking it into 10 phases with each 25 years of phase clearly set them apart and different than any other competitors. Their strategies were not just crafted without way out plans rather they had the creed philosophy to materialize their vision. B. Controlled expansion in the global trade field Even if a company had the best strategy in its pocket, it had to undergo for assessing its strength before entering into the international horizon since competition is pretty fierce out there. Basic control in Osaka yet the search of going for global hub based operations kept them intact in terms of financial growth and leverage capacity. Outside Japan the hands were still being treated an implementation part. C. Healthy Organizational structure nurturing innovation Matsushita since the beginning had been maintained a coherent attribute in the organizational structure with clear divisional mode of operations. One product one division had made them quite focused into their brands and innovation had been on their toes as well. By 1975 with the advent of VCRs from them they got the biggest share of growth pie. Even in USA they made their mark registering handsome growth while at the same time crossing Philips. D. Tradition bounties their results Like in all other Japanese organization, workforce deemed to have a life time membership of the organization irrespective to their performances. Initially it had been an asset since the best buddies with sound technical knowledge wouldnt leave and contribute.
Apart from VCRs, Matsushita had not come up with legendary breakthrough in the market since the early part of 2000. Last decades of 20th century had been a blessing for them since they rode on organic growth only; there had not been any substantial product and channel development from Panasonic to cover the needs of the time. Hence, we have detected some of the inconsistency that made them incompetent in the global arena:

A. Too much centralized version In the era of globalization one company cant just ignore the benefits of difference in utilizing its resources. Fair enough there has been a tradition in Japan but the presence of central tendency made the subsidiaries quite often unimportant. The top guns& management in the subsidiaries may have gone through an ethnocentric phobia which ultimately led them to

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functional disorientation form attaining strategic goals. As a byproduct of all, speed to market response for Panasonic would be high compared to any other companies in the industry.

Compare and contrast Evaluating both the companies is quite hectic as both have quite distinctive anatomy of own strategies. Yet evaluation can give us an academic benefit to lit the light on the overall modus of operandi in the consumer electronics industry since it has had a lot to offer from both experience and learning curve. Following is an attempt to look at the things rigorously as:
1. Mode of internationalization2: Both Philips and Matsushita has been very much present in the international arena but in a different manner altogether. Where Philips from the beginning had kind of Transnational mode with autonomous NOs; Matsushita had a different ball game with concerned centralization mode. But with the passage of time both have tilted from their positions where Panasonic released more power to their foreign subsidiaries on the other hand due to lack of results NOs from Philips model became less powerful making PDs and even IPCs more powerful. 2. Innovation: Both the companies at their operational level kept innovation as the key source to conquer the market. Philips did it with radio whereas Matsushita did it with VCRs. But the orientation for R&D in cultivating innovation has been different in both; in Matsushita we see more of Japanese dependency on R&D whereas Philips had been out of this tradition but they did curtail the budget of R&D at various times.

3. Cross Subsidization impact: Both companies might have enjoyed a healthy benefit form cross subsidization but it didnt happen that much. For Philips in the course of time from the chairmen view subsidiaries became burden-reaping benefit was way out of it. On the other hand subsidiaries of Matsushita did not enjoy enough freedom to contribute apart from the non-influence from HQ syndrome. 4. Organizational Matrix: Both companies over the time played the trick of reorganizing the verticals of the organization believing as a way to catch growth. For Philips, we have seen too many ways to centralize their subsidiaries, slashing jobs and initiating low cost outsourcing. On the other hand Panasonic from the early stage to date made significant changes in their subsidiaries making them even more powerful in terms of decision making with the local responsiveness. It seems both have travelled same but exact opposite route to find a handy solutions for overall structure of the company.

Impact translation has been depicted in Appendix B

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5. Portfolio diversification: One product does not fit all and in this era where innovations are quite natural both companies had also gone through changes in the organizational platforms to diversify its portfolios. Segmented product strategies were initially there for Panasonic. In Philips, we find that apart from bulb which served them as their cash cows they have diversified their product categories keeping different consumers set in sense.

Critical Suggestions with Strategic Imperatives Stepping into 2008 figures of net income for both companies, it seems Panasonic had been in the upper hand compared to Philips since as par case Panasonic played with single and coordinated strategy whereas Philips tried too many things with single sphere and turned out bad in the end. Recommendations to Kleisterlee: He had already made a significant differentiation in the market referring Philips a lifestyle company, which in a way puts Philips a smart move from their product life cycle in the ever changing and transient consumer electronics. New segments to be catered with more efficiency with no fall backs of indecisions. Time is very ripe and its now or never. To take a stronghold in the market:
A. Establish plain and simple strategy and allow NOs to take the lead in emerging markets where markets are still untapped. B. Local responsiveness with the global coordination for starting differentiated channel marketing. C. Spend justly where the fishes are and subsequently leverage the cross subsidization. D. Organizational structure may be more regional hub based with more power to regions for speed to execution in the market. And the Hub should remain accountable to HQ.

Recommendations to Ohtsubo: Declining sales over the consecutive period of time has been a key concern for him. Name change cant trick out the game rather there has to be some bold steps from Panasonic as in:
A. They have built the standard for themselves by relaxing more power to subsidiaries in the recent time. But it has yet to reap out benefit so it has to be maintained and localization in some traditional markets can give them edge since they were the pioneer there. B. Innovation has to be there for Panasonic and needs to look out for more diverse markets for them to cater for. Due to the dynamic nature of the industry itself the market leadership has become a revolving chair where only that company can gain and retain it with ease which have standardized product with frequent innovations. Both Philips and Panasonic has been the tested player of time. Currently they are out of sorts due to their own fragility in implementing right decisions at the right

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time. And they will become a history of oblivion if they dont sense the pulse of consumer and pops up with the ideas of life.

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Appendix A: Timeline of Philips and Panasonic till to date

Timeline: Philips Timeline: Panasonic

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Appendix B: Compare and contrast impact assessment matrix.

Mode of internationalization

Innovation

Cross subsidization Impact

Overall impact assessment

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References
1. 2. 3. 4. 5. 6. 7. 8. Barlett A. Christopher & Ghosal Suntra, Managing across Borders;Transnational Solution, second edition, Random House business books. Barlett A. Christopher & Beamish W Paul, Transnational Management, 6th edition, McGraw Hill. Harvard business review March 2012 edition, page 34-35. Bartlett, C.A. and Ghoshal, S. (1986) Tap your subsidiaries for global reach. Harvard Business Review, Vol. 64, No. 6, pp. 87-94. Perlmutter, H.V. (1969) The Tortuous Evolution of the Multinational Corporation. Columbia Journal of World Business, Vol. 4, pp. 9-18. Hamel, G. and Prahalad, C. K. (1985). Do you really have a global strategy? Harvard Business Review, Vol. 63, No. 4, 139-148. http://www.newscenter.philips.com/dk_da/standard/about/news/press/2012/20122304-Q1-results.wpd http://panasonic.net/ir/annual/2011/.