How did Philips become the leading consumer electronic company in the post- war era.. and how did these organizational capabilities become impediments in the 1970s? 1. In the case “Philips versus Matsushita: The Competitive Battle Continues” by Christopher Bartlett, Philips was able to become a leading consumer electronic company in the post-war era primarily due to its autonomous business model. As the case study stated, many of Philips assets and resources were moved away from their home country due to the war, even members of top management. The company already had a decentralized sales organization with independent marketing companies in various locations around the world.  These national organizations (NOs) created a competitive advantage for Philips because they allowed Philips to “sense and respond” to local demands and preferences in the countries they served. Because the NOs were working with their local demographics and responding to their needs, much of the product development was influenced by the NOs even though there were fourteen product divisions (PDs) in Eindhoven, Holland. This allowed Philips to diversify its product offerings and satisfy the various, local demands of their customers. The NOs played an important role in Philip’s success during the post-war era, and they had a lot of power and influence over the direction of the company. Furthermore, Philips viewed research as an important, vital part of their business so they kept up to date with new technologies. The situation changed after the war and many of the advantages that were advantageous to Philips became impediments in the 1970s. The liberalization of trade coupled with lower shipping costs during the 1950s and 1960s lessened the rationale for the independent NOs. Many competing firms, such as Matsushita, were able to take advantage of the situation and build strong export businesses, taking market share away from Philips. Philips had a cost disadvantage because production was not concentrated, and products were highly differentiated in each country the NOs serviced. However, due to the history of the NOs power and independence, it proved difficult to “tilt the matrix towards the PDs” when Philips tried to attempt reorganization. By 1987, Philips had lost its long-held leadership position in consumer electronics to Matsushita. There are several things Philips could have done to combat the rising competition from competitors like Matsushita. First of all, Philips needed to change its international business strategy. A localization strategy was beneficial to Philips in the pre-war era due to the trade barriers and high shipping costs. However, when trade became more liberalized, Philips needed to move from a localization strategy to a more global standardization strategy. Like Matsushita, Philips could have done a better job in taking advantage of location economies to lower costs such as setting up manufacturing in low-cos.

1. How did Philips become the leading
consumer electronic company in the post-
war era.. and how did these organizational
capabilities become impediments in the
1970s?
1.
In the case “Philips versus Matsushita: The Competitive Battle
Continues” by
Christopher Bartlett, Philips was able to become a leading
consumer electronic
company in the post-war era primarily due to its autonomous
business model.
As the case study stated, many of Philips assets and resources
were moved away
from their home country due to the war, even members of top
management. The
company already had a decentralized sales organization with
independent
marketing companies in various locations around the world.
These national
organizations (NOs) created a competitive advantage for Philips
because they
allowed Philips to “sense and respond” to local demands and
preferences in the
countries they served. Because the NOs were working with their
local
demographics and responding to their needs, much of the
product development
was influenced by the NOs even though there were fourteen
product divisions
(PDs) in Eindhoven, Holland. This allowed Philips to diversify

2. its product
offerings and satisfy the various, local demands of their
customers. The NOs
played an important role in Philip’s success during the post-war
era, and they
had a lot of power and influence over the direction of the
company.
Furthermore, Philips viewed research as an important, vital part
of their business
so they kept up to date with new technologies.
The situation changed after the war and many of the advantages
that were
advantageous to Philips became impediments in the 1970s. The
liberalization of
trade coupled with lower shipping costs during the 1950s and
1960s lessened
the rationale for the independent NOs. Many competing firms,
such as
Matsushita, were able to take advantage of the situation and
build strong export
businesses, taking market share away from Philips. Philips had
a cost
disadvantage because production was not concentrated, and
products were
highly differentiated in each country the NOs serviced.
However, due to the
history of the NOs power and independence, it proved difficult
to “tilt the matrix
towards the PDs” when Philips tried to attempt reorganization.
By 1987, Philips
had lost its long-held leadership position in consumer
electronics to Matsushita.
There are several things Philips could have done to combat the
rising
competition from competitors like Matsushita. First of all,
Philips needed to

3. change its international business strategy. A localization
strategy was beneficial
to Philips in the pre-war era due to the trade barriers and high
shipping costs.
However, when trade became more liberalized, Philips needed
to move from a
localization strategy to a more global standardization strategy.
Like Matsushita,
Philips could have done a better job in taking advantage of
location economies
to lower costs such as setting up manufacturing in low-cost
countries and
moving product research and development to low corporate tax
countries. This
way, the products could be manufactured at a lower cost as well
as be sold with
lower tax expenses. A disadvantage of a global standardization
strategy is the
lack of customization for its products because high
customization comes with
high costs. To mitigate this, Philips could continue to allow
NOs to influence
product development, but have product developers create more
standardized
products that could be sold in most markets. The decision of
which products to
make should be determined by the profit and cost advantages of
the products
themselves rather than it resting on the NOs or PDs. Similar to
Matsushita, new
product development could be setup as a competition for
resources between
NOs where the most cost effective yet high sales potential

4. products would be
developed. Adding to utilizing local economies, Philips could
have created a
global web in order to maximize the value created from specific
locations while
minimizing the costs related to the value creation. Philips
eventually took this
route in the 1980s, but the damage had already been done.
Philips was slow to change its business strategy and as a result,
they lost their
competitive advantage. If Philips had done a better job adopting
a global
standardization strategy, they may have not lost as much market
share to its
competitors.
2.
Phillips functioned in many strategic ways to become the
leading consumer
electronic company in the post-war era continuing to the
1970’s. In
anticipation of the impending war, Phillips transferred its
overseas assets to two
trusts, British Phillips and the North American Phillips
Corporation. In addition,
Phillips moved most of its research laboratories to Redhill in
Surrey, England and
its top management to the United States. According to the
article, “supported by
the assets and resources transferred abroad, and isolated from
their parent, the
individual country organizations became more independent
during the war.”
This independence is one of many ingredients in the success of
Phillips during
the post-war era. German bombing to Phillips’ industrial plants

5. in the
Netherlands gave management the opportunity to build the
postwar
organization of Phillips on the strengths of national
organizations. And this
increased self-sufficiency allowed the company to be more
adept at responding
to “country-specific market conditions” that is another factor in
Phillips success
in the postwar era.
Consumer preferences and economic conditions varied, which
meant in some
countries, rich, furniture-cased TV’s were the norm while in
other countries
sleek modern models dominated the market. Understanding this
difference in
their customer bases Phillips was able to tailor it’s custom
offering to each
customer segment, which is a great way to pivot in the
marketplace and make
sure they don’t lose their customer base. By modifying,
tailoring, and
specializing its product offering to each country Phillips was
able to become as
successful as it was in the postwar era. In good time this unique
“responsiveness
extended beyond adaptive marketing.” Phillips continued to
develop their
products with their customers in mind at all steps of the
process. For example,
Phillips of Canada created the company’s first color TV and
Phillips of Australia
created the first stereo TV. This form of customer specialization

6. and
advancement was unheard for in the 1930’s. Although
Phillips dominated
the market place for years, problems began to arise. The
corporate level
structure may have been appearing as a geographic/product
matrix the fact of
the matter is that the real power lied with the national
organizations (NO’s).
Phillips and each incumbent CEO attempted to reorganize at no
luck. During the
1960’s, trade barriers were battered because of the European
Common Market
that weakened independent country subsidiaries. New
technologies were
increasing the sheer size of production runs, and as most of
Phillips’
competitors moved their production plants to cheaper countries
like Asia and
South America. And due to Phillips paying higher for their
production plants
they were not able to be on the cutting edge of technology and
did not create
the most up-to-date technology for their customer base. The fact
is that in
technology without innovation there is nothing just ask Steve
Jobs. Their
competitors lapped up business for VCR’s, audiocassettes, and
microwaves; if
you don’t evolve you become obsolete. And the new chairman
of the Phillips
knew without an overhaul and reorganization none of these
problems would be
adequately addressed.
Management and the higher ups at Phillips understood they
needed to do

7. something to get cost down and one of the main ways to do that
is to find a
cheaper way to make the product in plants in cheaper parts of
the world. In
addition, getting rid of or making less efficient plants more
efficient.
Unfortunately, this was not enough to compete with the likes of
Matsushita. This
best way to deal with this setback would be standardization
across plants that
would be easily applied globally. Then CEO CEO Hendrick van
Riemsdijk set up
an organization committee to combat the criticism that the
company continued
on the path of profitless progress. This organization committee
would be
responsible for creating a policy paper that describes the
responsibilities
between the PDs and NOs. The power matrix that the
organization committee
supported provided the NOs with the most freedom and voice,
which would
make it hard for management to speak out or make decisions,
impeding
progress that only ended up hurting Phillips. Phillips really
strived to get back
to its glory days but those days were behind them due to new
competitors who
could do what Phillips did but only cheaper, faster and more
efficiently. During
this era the innovation in the technology sector was astounding
and it just
wasn’t going to be very easy for Phillips to stand out as an
innovator.
3.

8. The case, “Philips versus Matsushita: The competitive Battle
Continues” by
Christopher A. Bartlett, describes how Philips and Matsushita
adopted different
strategies that helped both of them gain very different, but
successful
organizational capabilities. Philips, with its responsive national
organizations,
and adaptive marketing achieved a great success, and was the
industry’s leader
for years. However, by the end of 1960s, Philips lost its
responsive capability
and innovation which allowed Matsushita with its centralized
and very efficient
Japan operations to grow bigger and take the lead.
Starting from Holland in 1899, Philips was growing
consistently. Its success
helped the company grow internationally, and soon took over
the electric lamp
industry by 1912. During the 1919s period, Philips entered into
Principal
Agreement with General Electric, and soon after Philips
changed its strategy
from a highly centralized company to a decentralized sales
organization, which
had marketing firms in Europe (14 countries), China, Brazil,
and Australia.
Furthermore, the company broadened its product line to include
electronic
vacuum, first radios, and x-ray tubes by 1930.
The subtle competitive leadership between the Philips brothers
helped the
company’s growth. In response to the impeding war in the late

9. 1930s, Philips
transferred its global assets to British Philips, and North
American Philips
Corporation. Philips also moved most of its vital research
laboratories to
Redhill in Surrey, England, and the top management to the
United States.
As a result of the war, the individual country organizations
became more
independent as they were isolated from each other and also from
headquarters.
This helped these organizations to become increasingly self-
sufficient where
they adapted and responded to the changing market conditions
during the war.
The smart move Philips made was when they took the success
their individual
organizations achieved, and used it an asset in the post-war era.
Philips made a
decision to build the post-war organization on the strengths of
the NOs. In
addition to the adaptive marketing, Philips improved their
technical capabilities
to include product development, which became a function of
local market
conditions. The responsive national organizations were very
innovative, the
Canada plant invented the first color TV, Philips Australia
invented the stereo
TV, and Philips UK invented the TV with teletext.
As the national organizations held the most of Philips power,
the company
enjoyed a great success and was the leader in its industry until
the late 1960s.
During that period, the trade barriers were taken away by the
European

10. Common Market which in turn destroyed Philips’ successful
strategy as the
independent individual national organizations did not have to be
independent
anymore, therefore decreased their ability to be innovative. As
a result, the
demand for new transistor-based technologies grew bigger than
the capacities
of Philips national plants to innovate and produce. Philips’
competitors were
catching up as they moved their production plants to Asia and
North America
to take advantage of the low production costs while Philips
continued with the
same strategy. As a result, the competitors with their
centralized and highly
efficient operations in japan took over the mass market of
audiocassettes and
microwave ovens of which Philips had invented, and Philips lost
the ability to
respond to the changing market conditions. Since then, Philips
went through
many reorganization plans, but still fell short of gaining back
their success.
In conclusion, Philips was the leader in the electronics industry
with its
competitive capabilities. Philips’ strategy of building
responsive individual
national organizations able to produce innovative products in
response to the
specific country-market conditions, was the reason behind the
great success the
company enjoyed for a long time. But, the loss of trading

11. barriers between the
previously independent national organizations during the late
1960s, slowed
Philips’ ability to implement their strategy. A change was
needed, but Philips
failed to find a strategy that would help regain its success. On
the other hand,
Philips competitors such as Matsushita took advantage of the
changing
environment and adopted a very efficient strategy by moving
their operations
to Japan, which helped them grow bigger take the lead away
from Philips.
4.
In the article titled, “Philips vs. Matsushita: The Competitive
Battle Continues”
Christopher A. Barlett describes the diverse strategies and
schemes used by
both businesses to obtain a competitive edge over the other. As
both companies
battled over the global marketplace major challenges emerged;
correlated with
competitive positions and organizational models. To combat
these challenges,
several rounds of organizational restructuring and an attempt at
adapting to the
market occurred. The ultimate result (no longer industry leader)
was not what
each company hoped for. My response will be focused on what
Phillips did to
become the leading consumer electronic company in the post-
war era,
continuing through the 1970’s.
During the late 1930’s, with the impending war on the
horizon, Philips

12. would transfer its assets overseas to two trusts, British Philips
Corporation (from
Holland to U.K.) and North American Philips Corporation (from
Holland to
America). Furthermore, Philips moved most of its vital research
laboratories and
top management to the United States. The No’s (national
organizations) were
becoming more and more independent during the war. “Their
greatly increased
self-sufficiency during the war had allowed most to become
adept at responding
to country-specific market conditions (very valuable asset). “
For example, due
to economic conditions and consumer preferences varying (one
country likes
rich furniture-encased TV set vs. another country liking
contemporary model)
Philips tailored, modified, customized, and adapted its product
offering to make
it useable for a new locale. This added value to Philips’ offering
and the
customers would soon see that. Responsiveness would extend
past that
adaptive type of marketing. Product development would
become a function of
the local market conditions. An example of this was when
Philips of Canada
crafted the first company color TV, Philips of UK created the
first TV with
teletext, and Philips of Australia generated the first stereo TV.
While this strong building block and elite organization
had prospered,

13. problems started to arise. It was becoming more and more clear
that even
though the corporate level structure appeared as a
geographic/product matrix,
the real power belonged to the national organizations. Philips
attempts at
reorganization began to fail. During the later part of the 1960’s,
the European
Common Market battered the trade barriers and weakened
independent country
subsidiaries. New technologies were beginning to demand even
larger
production runs than many national plants could accomplish and
many of
Philips’ competitors were moving their production to newer
facilities due to low-
wage areas (in turn creating higher profit) in South America and
Asia. At the
same time, Philips began to falter due to not having the ability
to bring
innovative products to the market anymore. Their competitors
started capturing
the mass market for microwaves and audiocassettes. Moving
forward, the
chairmen knew that reorganization of the company was A
MUST in order to deal
with this growing set of problems.
5.
In the article titled, “Philips vs. Matsushita: The Competitive
Battle Continues”
Christopher A. Barlett describes the diverse strategies and
schemes used by
both businesses to obtain a competitive edge over the other. As
both companies
battled over the global marketplace major challenges emerged;

14. correlated with
competitive positions and organizational models. To combat
these challenges,
several rounds of organizational restructuring and an attempt at
adapting to the
market occurred. The ultimate result (no longer industry leader)
was not what
each company hoped for. My response will be focused on what
Phillips did to
become the leading consumer electronic company in the post-
war era,
continuing through the 1970’s.
During the late 1930’s, with the impending war on the
horizon, Philips
would transfer its assets overseas to two trusts, British Philips
Corporation (from
Holland to U.K.) and North American Philips Corporation (from
Holland to
America). Furthermore, Philips moved most of its vital research
laboratories and
top management to the United States. The No’s (national
organizations) were
becoming more and more independent during the war. “Their
greatly increased
self-sufficiency during the war had allowed most to become
adept at responding
to country-specific market conditions (very valuable asset). “
For example, due
to economic conditions and consumer preferences varying (one
country likes
rich furniture-encased TV set vs. another country liking
contemporary model)
Philips tailored, modified, customized, and adapted its product
offering to make

15. it useable for a new locale. This added value to Philips’ offering
and the
customers would soon see that. Responsiveness would extend
past that
adaptive type of marketing. Product development would
become a function of
the local market conditions. An example of this was when
Philips of Canada
crafted the first company color TV, Philips of UK created the
first TV with
teletext, and Philips of Australia generated the first stereo TV.
While this strong building block and elite organization
had prospered,
problems started to arise. It was becoming more and more clear
that even
though the corporate level structure appeared as a
geographic/product matrix,
the real power belonged to the national organizations. Philips
attempts at
reorganization began to fail. During the later part of the 1960’s,
the European
Common Market battered the trade barriers and weakened
independent country
subsidiaries. New technologies were beginning to demand even
larger
production runs than many national plants could accomplish and
many of
Philips’ competitors were moving their production to newer
facilities due to low-
wage areas (in turn creating higher profit) in South America and
Asia. At the
same time, Philips began to falter due to not having the ability
to bring
innovative products to the market anymore. Their competitors
started capturing

16. the mass market for microwaves and audiocassettes. Moving
forward, the
chairmen knew that reorganization of the company was A
MUST in order to deal
with this growing set of problems.
Management needed to try anything in order to get costs down
(focus on core
operations and get rid of/close down least efficient plants), yet
continue to get
the most out of what they were already using. This still wasn’t
necessarily
enough to compete with Matsushita. Therefore, the best decision
was switching
from focusing on things locally to a standardized approach that
can be used
internationally (better globally). To combat criticism, such as
when one
magazine described the company as “continued profitless
progress”, CEO
Hendrick van Riemsdijk designed an organization committee,
which would be
responsible for creating a policy paper that describes the
responsibilities
between the PDs and NOs. “Yellow Booklet” was then created
which outlined the
disadvantages of Philip’s matrix organization. The power matrix
would provide
the NOs with the most, which would make it hard for
management to speak out
or make decisions, impeding progress. Giving too much power
away, in turn,
would take everything to a new low point Philips tried many
different ways to get
back to where it was previously, but with new competitors in
the market and
new innovations created at lower costs things were not looking

17. good for Philips
during this time period.
6.
In “Philips versus Matsushita: The Competitive Battle
Continues,” author Christopher A.
Bartlett details each firm’s global strategy and tactics used to
achieve a sustainable
competitive advantage. As Philips and Matsushita grew over
many decades and
competed against one another in a global marketplace, multiple
rounds of corporate
restructuring and inability to adapt to shifting market needs
resulted in each company’s
subsequent loss of title as industry leader. This response will
focus on Philips’ efforts to
be an industry leader during the time period of Post-World War
II through the 1970s.
Philips’ foresight with the forthcoming Second World War
resulted in the company
transferring its assets overseas from Holland to the UK and
North America; research
laboratories moved to England and top management was
relocated to the United States.
During the war these National Organizations (NOs) grew in
independence from the
parent company and were self-sufficient, becoming adept at
responding to country-
specific market needs. For example, Philips was able to
customize its product offerings
for each market need by leveraging a localization strategy. This
allowed Philips to
manufacture and sell television sets based upon county-specific

18. market conditions – a
valuable asset mentioned in the case study – and propel the
company to the top-spot.
By adapting its product offerings for each market through
localization, customers
perceived an increased value in Philips’ offerings while Philips,
through the use of NOs,
could easily adapt its strategy to match the country it was
operating in. Product
development was encouraged by the NOs as a function of each
local market and what
market-selling model worked best. This tactic resulted in color
televisions debuting in
Canada, stereo televisions launching in Australia, and teletext
first appearing in the UK.
Despite creating a strong global organization over the course of
30 years, Philips soon
had a problem on its hands: the National Organizations held
most of the power and the
organizational structure was based on a product or geographic
matrix. In the 1960s,
trade barriers were relaxed and independent country subsidiaries
like the National
Organizations were no longer needed. Philips’ core
competencies, such as meeting local
and segmented market demand with innovative products, were
weakened as new
industry players from Japan (i.e., Matsushita) utilized
technology exchanges and patent
licensing to enter the market with greater economies of scale
and lower cost products.
After losing the video format war to Matsushita’s VHS system,
the company knew that it
needed to reorganize to stay relevant and keep up with market
trends. The “Yellow
Booklet” report cited that the current Philips’ organization

19. matrix made it unclear as to
who was in charge of the company and this uncertainty reduced
the time to market for
technology products – a practice that was ramping up at
Matsushita.
Philips’ top management knew that their current company
structure was not feasible for
long-term success, as they needed to achieve better economies
of scale. Facing strong
cost pressures and local responsiveness, the company ideally
needed to restructure its
strategy from localization to global standardization, as this
would provide the economies
of scale and more standardization of products for a global
market – typically through the
use of centralized production centers. Increased batch runs and
use of standard parts
would cut costs, a practice adapted by Matsushita as it grew
during the same time
period. While this feat seems easy in theory, it was not
practical in a real-world scenario.
Over the course of 40 years of operations, the National
Organizations held such high
power that top management had difficulty asserting power over
them. Any attempts to
‘tilt’ the organization’s power matrix was met with strong
resistance and, as a result, the
company had to sell peripheral business units, such as welding
and furniture making,
and focus on perceived core operations. Individual production
plants were closed across
Europe, but it still wasn’t enough to compete with Matsushita
and other Japanese
companies that implemented stronger core competencies, such
as Kaizen strategies.
It is true that Philips built a strong organization during its early

20. years of operation that
allowed the company to hold a sustainable competitive
advantage for nearly 30 years.
However, top management transferring too much of its power to
the localized
subsidiaries resulted in a scenario where the ‘inmates’ were
running the proverbial
‘asylum’. By giving up so much power, Philips’ corporate
office and management team
were never able to recover their initial influence over the
company, and as a result,
created a company structure that was segmented. As the global
marketplace barriers
softened and more industry players emerged, the company’s
business structure was
realized to be outdated and disorganized; any attempts at
organization were met with
resistance by the National Organizations and, as a result, the
company started to erode
from within. Philips never did regain its competitive advantage
and saw new industry
leaders emerge into the market from Japan that brought
innovative products to
customers that were cheaper and quicker to manufacture. In
business, leaders must
keep control of their companies and their eyes on the market.
Being nimble to adjust to
these conditions sets apart the industry leaders from industry
stragglers.