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A new century, a new round. MBA 290G November 14, 2007 Team One Sohail Gondal, Vince Law, Que Anh Nguyen, Jason Stauth. VS. Germany. Belgium. 1918-1930s Vacuum tubes, radios, x-ray tubes. 1892 Light bulb factory. 1963 Audio cassette tape. 1982 Compact Disc with Sony. 1970’s

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A new century, a new round


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a new century a new round

A new century, a new round

MBA 290G

November 14, 2007

Team One

Sohail Gondal, Vince Law, Que Anh Nguyen, Jason Stauth

VS.

koninklijke philips electronics n v netherlands

Germany

Belgium

1918-1930s

Vacuum tubes, radios, x-ray tubes

1892

Light bulb factory

1963

Audio cassette tape

1982

Compact Disc with Sony

1970’s

Adoption of Matshusita’s VHS over V2000 videocassette

1940

Moved management & research to US and England

1912

Incorporation

1971-present

Reorganization of company

- 7 CEOs -

Koninklijke Philips Electronics N.V., Netherlands
  • Consumer Electronics, Lighting, Medical Systems, and Domestic Appliances and Personal Care
  • In 2006 $39.6 billion in sales, 60 countries
  • Bordered by the North Sea to the north and west, Belgium to the south, and Germany to the east.
matsushita electric industrial co japan

1974

Purchased Quasar from Motorola

1940’s

Light fixtures, motors, electric irons

2006

No more analog TVs.

Concentrate on digital.

1918

Duplex lamp sockets

1989

Japanese stock market crash

1979

Expanded “Panasonic” brand to Europe

2004

Panasonic as primary global brand

1960’s

Television sets

“Panasonic” brand

1927

Bicycle lamp

“National” brand

Matsushita Electric Industrial Co., Japan
  • Brands and divisions:
    • Panasonic, National, Nais, Quasar, Technics, Ramsa, Rasonic
  • In 2006, $79 billion in sales
  • Ranked the 59th company in the world in 2007 by the Forbes Global 500
comparison of the starting positions of the two organizations
Comparison of the starting positions of the two organizations

Philips

Matsushita

Structure

Matrix

Hierarchical

Decision making

Decentralized

Centralized

Staffing

Key staff local

Key staff ex-pats

Strategy

Technical innovator

Fast follower

2006 sales by product line and region
2006 Sales by product line and region

AVC=audio, video & communications; MEW=Matsushita electric works

CE=consumer electronics; DAP=domestic appliances and personal care

focus on growth in different industry sectors
Focus on growth in different industry sectors
  • Semiconductor Division:
  • 15% total sales
  • 17% EBIT

Philips Semi Div

slide8

Factor conditions

Philips

Matsushita

  • Good supply of Dutch engineers / sales talent
  • Tap into EU / US talent
  • Good supply of Japanese engineering and commercial talent
  • Value-added per hour 68% higher than EU

Skilled

resources

  • Proximity to Germany caused operations to be moved abroad during WW II
  • Proximity to low-wage Asian countries for manufacturing

Geographic

Location

slide9

Demand conditions

Philips

Matsushita

  • Dutch market too small to absorb mass production of electronics
    • Expansion to foreign markets (1899)
  • Japanese consumers represents a significant market
    • Late focus on export market (1950’s)

Market

size

  • Global Ops provided access to local trends and needs in foreign markets
  • Products focused on local markets
  • Japanese customers are highly demanding of quality and innovation in electronics

Market

maturity

slide10

Related & support industries

Philips

Matsushita

  • Locally weak, but strong EU (Siemens) and US (GE) competitors

Related

industries

  • Strong presence of quality competitors

Support

industries

  • Locally weak, but strong EU / US value chain
  • Strong presence of players across electronics value chain
  • Approximately 120 electronics company in Japan
slide11

Firm strategy, structure & rivalry

Philips

Matsushita

  • Stay focused on core products while competitors were diversifying
  • Emphasized innovations & technological prowess
  • Diversified product line
  • Focus on operational excellence
  • Fast-to-market, “Manishita”

Strategy

  • Decentralized global operations, strong NOs
  • Joint technical and commercial leadership
  • Highly centralized
  • Small business environment with divisional structure
  • “One-product-one-division”

Structure

  • In house competition between technical and commercial functions
  • No national rivals
  • In house competition between divisions
  • Fierce competition from Japanese electronics firms: JVC, Sony, Hitachi

Rivalry

slide12

How Philips’ strengths and core competencies became its weaknesses

Core Competencies

Core Incompetencies

Ability to adapt to local market conditions

No economy of scale in manufacturing

Strong National Organizations

Fiefdoms often working against each other

Common Market

Employee centric values

Organization with “lifers”

Focus on R&D / technical innovation

Inability to commercialize innovation

slide13

How Matsushitas’ strengths and core competencies became its weaknesses

Core competencies

Core incompetencies

Broad line of products (5000 vs. Sony’s 80)

Bloated operations & excess capacity

Centralized structure in Japan

Developing local footprint

1989

Market Crash

Strong culture at centre

Over-reliance on centre for innovation

Fast follower strategy

Weak entrepreneurial / innovation ability

slide14

A comparison of the two organizations attempts to shift their strategies

Matsushita

Philips

Degree of

centralization

  • 1970’s - Shift to IPC’s / Tilting matrix to PD’s
  • 1987 - 4 core LOBs / 14 PD’s to 4 global divisions
  • 1990 - Bet on 15 core multimedia technologies
  • 2001 - Eliminate “management discount” in stock price
  • 1982 - Operational Localization
  • 1986 - “Matsushita Bank”
  • 1999 - “Simple, small, speedy and strategic”

High

Low

slide15

While Philips is amongst the biggest R&D spenders in the industry…

The worlds top ten R&D investors in electronic and electrical equipment

2003 R&Dspend (£m)

Source: UK Department of Trade & Industry – R&D Scoreboard

slide16

… it still seems unable to translate innovation into commercial success.

The top ten companies in electronics and electrical engineering

120,5

Total sales (in billions of euros)

Sales in electrical capital goods (in billions of euros)

79,6

74,2

75,6

66,9

64,2

57,3

64,9

56,8

63,1

46,7

43,5

37,1

38,5

30,4

36,3

28,6

21,0

26,5

17,1

Samsung

Electronics

(KOR)

Toshiba

(JPN)

Hitachi

(JPN)

Matsushita

(JPN)

NEC

(JPN)

GE

(USA)

IBM

(USA)

Siemens

(D)

Sony

(JPN)

Hewlett-

Packard

(USA)

slide17

Despite the attractiveness of foreign markets for electronics products…

The top ten world markets for electronic and electrical equipment

32.3

% share of world market

14.1

6.9

6.2

3.9

3.6

2.7

2.6

2.3

1.5

volumes in € billions

Source: Siemens AG, Nov 2003

slide18

… Matsushita still generates the predominant amount of its sales from Asia.

Sales by geographic segment

Philips

Matsushita

Source: 2006 Financial Statements

Source: 2007 Financial Statements

slide19

While lagging in sales, Philips has managed higher net income

Possible reasons for Net Income differential

Sales, $bn

  • Philips has disposed of many businesses that has resulted in net income being supplemented by income from discontinued operations e.g., in 2006
  • Exchange rate effects due to weak Yen
  • Tax incentives to Philips?

Net Income, $bn

slide23

Why do the transformation efforts at Philips and Matsushita not seemed to have worked?

Eight steps to transformation

Leading Change: Why Transformation Efforts Fail, Kotter, HBR

Philips

Matsushita

1

Establish a sense of urgency

2

Form a powerful guiding coalition

3

Create a vision

4

Communicate the vision

5

Empower employees to act on the vision

6

Create short term wins

?

?

7

Build on momentum to drive more change

?

?

8

Institutionalize new approaches

slide24

Corporate venturing units have “generated decidedly uneven financial returns”

Success rates for different types of venture unit

Source: The future of corporate venturing, MIT Sloan Review, Fall 2003

slide25

Apple’s Core Competencies

  • Many-to-one supplier relationship
  • Close supplier relationships
  • Complete off-shore production
  • Retain bargaining position and drive down costs

1

  • Flat/small structure, young/innovative culture
  • User-centric design and marketing
  • Focused product line
  • Strong brand loyalty
  • Own the customer relationship = higher margins

Managing the supply chain

+

2

Core strengths in design & branding

=

Maintain Control over suppliers and costs

High margins & Dominant market share (ipods)

comparison philips matsushita apple
Comparison: Philips, Matsushita, Apple

Consumer Electronics Value Chain:

Component & Material

Suppliers

Assembly

Design

Development

Marketing

Retail

Customer

Organizational Structure

Firm Culture

how to compete with apple in ce
How to compete with Apple in CE

Develop internal entrepreneurial spark

Diversify design and development beyond Japan

Top management buy-in

E.g. allow autonomous product development and design arm to thrive within the company

Build smaller brands or reinvent existing brands (Panasonic/ National) for premium image

higher prices/margins

  • Focus on core competency: local design and engineering innovations
  • Improve/centralize commercialization, marketing, and branding of innovation
  • Centralize/outsource production, develop operational excellence
    • Minimize cost of production