Harvard Business Review Analytic - philips versus matsushita the competitive battle continues

Maha Hanno
Philips Versus Matsushita: The Competitive Battle Continues
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Introduction: this case study describes the development of the global strategies and organizations of two major competitors in the
consumer electronics industry. Over four decades, both companies adapt their strategic intent and organizational capability to match
and counter the competitive advantage of the other. The case shows how each is faced to restructure as its competitive advantage
erodes. Philips was founded in 1892 by Gerard Philips in Eindhoven, Holland. Tradition of caring for its workers. Innovation as a
core strength. One product focus on light-bulbs (initially) + Gerard’s technological prowess enable significant innovations. Strong
research vital to company’s survival. Philips built its success on a worldwide portfolio of responsive national organizations.
Matsushita was founded in 1918 by Konosuke Matsushita in Osaka, Japan. “Seven Spirits of Matushita” and cultural and spiritual
training are key. First Japanese company to adopt the divisional structure “One-product-one-division” and Internal competition
fostered among divisions. Matsushita built its success on its centralized, highly efficient operations in Japan.
Tactical and strategic changes and there results: During their life cycles, both Philips and Matsushita tried various changes to
counteract the current market conditions, demand, innovations etc. to keep the position as a market leader. However, not all the
changes planned by the CEOs did help the firms. To keep up with the fast-changing pace of the world, the companies applied many
tactical and strategic changes that made them both presided and branded. Few of the CEO’s committed several mistakes by shifting
the total product portfolio from manufacturing to service based, where the market analysis and the customer’s requirements were
placed aside and a race to increase sales and increase revenues started. The core competencies and competitive advantages were
overlooked as an effect of the fast pace technological market changes. The Core competencies of Philips in the common market:
1) Ability to adapt in Local market conditions, 2) Strong national organizations, 3) Employee centric values. Core Incompetence
of Philips: 1) Focus on R&D and technical innovation, 2) No Economy of scale in manufacturing, 3) NO usually working against
each other, 4) Live time employment promises, 5) Challenges faced in commercialization of innovations. However, the Initial Core
competencies of Matsushita which eventually become weaknesses are: 1) Broad line of Products, 2) Centralized structure, 3)
Very high and unrealistic Cultural values (for long terms). The values must be changed or at least must be adaptive enough to let
the firm cope with the changing world economy, 5) Fast follower’s strategy. Eventually the above strengths became weaknesses
for the firm: 1) Surplus capacity and stuck operations, 2) Only local footprint, 3) High reliance on innovation centers, 4) poor
innovative abilities.
Conclusion: Based on Exhibit 3.1 and Exhibit 3.2: The tactical changes did not benefit both companies.1) Establishing a sense of
urgency – Both firms were able to see the global market changes and realized that change in the company strategy is necessary to
cope with the high changing environment. 2) Form a powerful industry guiding coalitions – Both companies failed significantly in
forming alliance in the time when it was most needed. In case this strategy would have been adopted, the CE market would be a
different place now. 3) Create a vision – The leaders of the companies had a vision to reach certain goals in terms of sales, market
segments, profit, revenue, innovation and technology. This is very important to the firms but the uncertain nature and miscalculated
decisions have spoiled the effects of the vision. 4) Communicate the vision. 5) Empower employees to act on the vision – Philips
changed its strategy by re-enforcing innovation and R&D segment of the company after heavy back-slash of the workforce. This
has resulted in their favor eventually. However, the outsourcing of the R&D and creating alliance with foreign academies has
demotivated the employees of Matsushita and the innovation came to a stand still for this firm. 6) Short term wins – Both companies
were focused for the long-term plans and were trying to align their long term goals. The short-term gains, which can boost the
performance of the firm, confidence of the shareholders etc. were totally overlooked. 7) Building up the pace to deliver changes –
Both firms failed in creating slow and gradual pace to perform significant changes. The changes were performed with a big-bang
approach and created heavy resistance
Recommendations: For Philips. During the period when Mr. Boonstra reorganized Philips, it was facing the challenge of putting
global controlling mechanism to balance the process of decentralization. For the sake of global integration, it is suggested to re-
allocate the power to the global centralized modules like development, manufacturing, marketing and services. Also, the tradeoff
of cost reduction with technological capabilities is there, Philips should not have tried to save the cost or reduce the cost from the
area where there core competencies lies at. A swift customer focus approach, like after sales support and investments in market
research would have given higher ROI by promoting correct strengths in correct markets. A robust information system can provide
very high benefits to all the NO of Philips. For Matsushita’s while addressing the challenges of enhancing the local responsiveness
and balancing centralization with innovation would be to put a suitable localization system in place by addressing Technology,
market sense and employees. A solid and robust information system is needed to address this. This would have helped all the
subsidiaries in product planning and bringing it to market without competing with each other. Cross-functional teams for market
investigations could have helped as well. Lack of local talents was missing, therefore, hiring locals to stimulate the company culture
& collect insightful thoughts. One thing which both companies missed is hiring people from each other to get the better
understanding about business “headhunting”. Perhaps this is slightly unethical; however, it could be extremely beneficial for the
firms. This concludes my view about why it took so long for these companies to turn around and cope with the rapidly changing
consumer electronic, technological and innovative market segment. Another both CEOs to merge the two groups into one
international company (such as the merger of Sony and Ericsson). Merger will also create an advantage on the one hand, in terms
of scale, such as manufacturing abilities and efficiency of operations and logistics (the advantages of Matsushita). On the other
hand, capabilities technology innovation and flexibility in reading the local markets and adjustment products and services to local

Maha Hanno
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markets (Phillips) and a massive global presence together. Union membership will allow one reducing equivalent products or the
creation of brands at different levels and on the other hand general enlargement of the basket of products and services.
References:
Bartlett A. C., (2009). Philips Versus Matsushita: The Competitive Battle Continues. HBS No. 9-391-
089. Boston, MA: Harvard Business School Publishing.
Exhibits:
- Exhibit 1 and 3
- SWOT Analysis
- Philips Porter’s Diamond analysis Exhibit 2.1
- Matsushita Porter’s Diamond analysis Exhibit 2.2
- Philips and Matsushita’s cultures.
- Case study discussion questions
- Philips and Matsushita’s McKinsey 7-S Framework
- ARC to Align with Strategy
- Philips and Matsushita’s Attempts at Reorganization
- Philips and Matsushita’s Resources
- Philips and Matsushita’s Value Creation Process
- Philips and Matsushita’s Sustainable Competitive Advantage through ARC

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Exhibit 1. Philips Matsushita
Org Design
Structure Matrix Based Hierarchical
Decision Making Decentralized Centralized
Staffing Local Key staff Ex-pats Key Staff
Strategy Technical Innovation Fast Followers

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The 21st Century, by 2001, Philips becomes evident that
Philips’ best chance of survival was to outsource even more
of its basic manufacturing and become a technology
developer and global marketer. In 2002, company HQ
moved from Eindhoven to Amsterdam. In a sense, the move
to Amsterdam can be considered a return to the company's
roots, because Gerard Philips lived in Amsterdam when he
came up with the idea of building a light bulb factory and
also conducted his first experiments in the field of mass
production of light bulbs there. Philips Lighting, Philips
Research, Philips Semiconductors (spun off as NXP in
September 2006) and Philips Design, are still based in
Eindhoven. Philips Healthcare is headquartered in both
Best, Netherlands (just outside Eindhoven) and Andover,
Massachusetts (U.S.). In February 2001, Matushita’s first
losses in 30 years continue to accelerate. CEO Nakamura
announces round of emergency measures designed to cut
costs. Goal to move Matsushita beyond its roots as a “super
manufacturer of products” and begin “to meet customer
needs through systems and services”. In May 2003, the
company put "Panasonic" as its global brand, and set its
global brand slogan as, "Panasonic ideas for life”. In
January 2008, name changed to “Panasonic Corporation”

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Porter’s Diamond comparison of Philips and Matsushita’s strategies and other factors:
Exhibit: 2.1 Philips Porter’s Diamond analysis
Strategy,
Organization
Structure
and
competition
Strategy a.)Main Focus on Brand. b.)Technical development and global
marketing company. c.)Outsourcing production and
manufacturing.
· R&D: Traditional strength, got week due to cost reduction
measures and sell-offs. Currently, centralized R&D
· Manufacturing: Traditional strength of local market
knowledge with NO. Currently no local strategy but Global
Strategy.
Org. Structure · Decentralized NO: Advantageous for Local market but not
for the global strategy
· Decentralized Manufacturing: highly ineffective
· Decentralized R&D: conflicted with headquarters
· Power struggle and bureaucracy has impact on new
product development and marketing
Competition Fewer competition in Europe
External
Conditions
Political NO became independent as a cause of the WW2.
Decentralization
Trade regulations European Union formation and new laws made NO redundant.
Labor Laws European Labor laws made cost of labor expensive
Productivity Comparative low productivity in Europe as of Japan
Protection The Dutch legislation was over protective about Philips
Supporting
Industries
Demand
Traditional and
current
Philips was vertically integrated traditionally; Big divestment of
high tech business during the later stages
Current Strategy Outsourcing of manufacturing
Tech
Outsourcing
Majority of the high tech products are outsourced
Demand Low Domestic
demand
Smaller domestic market for Philips as it went global in late
19th
century
NO’s
concentration
NO were concentrating on local market in very aggressive
manner rather than contributing to the global market

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Exhibit: 2.2 Matsushita Porter’s Diamond analysis
Strategy,
Organization
Structure
and
competition
Strategy a.)No more manufacturing b.)Moving value chain to customers
systems. c.)Providing services.
· Internal Competitions: All subsidiary divisions were
struggling with each other to bring new products to market
· Innovation: New innovative products rather than copying
existing technology form the market leaders to become 2nd
leader
in the market.
Org. Structure · Discontinued Divisional structure for multiproduct centers
· High labor cost in Japan lead to move production to other
Asian countries
· Restructuration leads to layoffs, facilities and product
portfolios
· R&D outsourcing failed to be innovative
Competition Higher competition in Japan and European companies
External
Conditions
Labor Cost Highly productive labor, highly skilled but increasing labor cost
Liberalization of
Trade
Low rates of shipping increased black and white TV in export
1960’s
Political New plants were installed by other companies in Southeast Asia
and South America and other developing countries
Trade War Further globalization in North America and Europe when they
bought external companies
Supporting
Industries
Internal Supply Key components were supplied internally
Local
Components
Sourcing of local components from market but by national
subsidies
Outsourcing R&D was outsources to other Asian countries
Demand High Local
Demand
Japanese consumer is sophisticated and company has high
demand in local market
Uncertainty in
domestic market
After the domestic market collapse company has to move more
in R&D and offshore investment

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How did Philips become the world’s leading consumer electronics company in the post World War II era, and
how did Matsushita succeed in displacing Philips?
Leader
1. Independent research arms independent of HQ.
2. Global handed off to PDs, NOs continue new developments (color TV, stereo TV, microwaves)
Competency
1. Independent research unhindered by HQ
2. Local operations run by locals
Disadvantages
1. No clear control
2. Manufacturing plants not in low-wage markets
3. Several marketing blunders
How did Matsushita succeed in displacing Philips?
Overcoming Philips
1. Low-cost producer
2. Correctly bet on VCR (again low-cost producer)
3. Centralization
Competency
1. Centralization, hierarchy and organization
2. Quick responder, "Manishita"
3. Home country strength
4. 'Hungry Spirit'
Disadvantages
1. Lack of innovation
2. Subsidiaries incapable of acting without HQ
Factors that pushed the leading company Philips consumer products are historically foresight prior assessments of the
second World War, which included splitting off of and evaluations of the entire European continent company
systems. This has created a competitive advantage in world class immediately after the war, because the independent
factories were built in the target countries which adapted themselves to local markets and consumer preferences in
terms of types of consumer culture Philips marketed the products.
Capabilities uniqueness of Phillips resulted capabilities Financial management and planning of the headquarters, the
concentration of R & D on the other hand providing flexible capabilities, innovation and creativity in terms of
marketing the products in target markets. As well as the company's research was characterized as applied research
connected to the product group through financing cross and while maintaining the affinity for the target markets
different. the management structure in common – Technical – Commercial possible decision-making process
optimized taking into account technical aspects, financial and marketing headquarters to the boards of junior local.
And finally, unlike its competitors, the early 20th century specialized Phillips capability building sales are
international.

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Company main limitations are:
1. Decentralized company structure. This structure can be almost complete independence with regard to subsidiaries
manufacture and sales activities. Structure has an advantage in terms of proximity to the area and the ability of survival
(such as Mlh"ha the two) and a disadvantage in terms of control of the parent company and the transfer of Board
Decisions and strategic changes.
2. At Phillips was a strategy of local production. Was that the advantage of flexibility to local market but lack
any related economies of scale such as this was Lmtzosita. In addition, with regard to valuation of the company as a
whole, corporate structure consisting of units of a many independent is not possible to Philips to create strategic moves
worldwide such as marketing and standardization of world class products.
3. Look inside social which was a limiting factor was Employee participation in the profits of the company, this will
have an impact and financial limitation which was taken over many years. Matsushita's move and bypassing market
leadership Philips done by focusing on economies of scale, so by concentrating production in creating cheap little
product costs, thereby increasing the attractiveness of products. Also creating a very extensive product offer (5000
products Sony Lmtzosita vs. 80). In addition, Matsushita was in the D – constant internal organization which is
generally characterized by increased efficiency in some cases increasing decentralization (marketing and sales) on the
one hand and increasing the concentration of the other (administrative). Matsushita took care products for the high-
quality product while creating low market price and especially the standardization of products. Matsushita's
capabilities are characterized by: 1. Production capabilities (centralized production, low price) and creating economies
of scale. 2. Control of global marketing 3. Copying technology capability and bring it to market quickly in a short
time but also in manufacturing and technology innovation. Matsushita's limitations: a. Centralized strategy has
prevented the expansion of sales and marketing. b. Subsidiaries lacked innovation capabilities mainly due to the
limited independence. c. Lack of adaptability of products to local markets due to administrative centralization.
4. General production surplus and lack of innovation in the departments of R & D. Increasing development teams
outside of Japan did not solve this problem.
Philips took the same operational efficiency while Matsushita Lmtzosita sought to innovation as the Philips
subsidiaries. Phillips: The purpose of Philips changes were increasing the profitability beyond 1-2 percent. The
measure was increasing administrative centralization, reducing products, building economies of scale in production
and increasing operational efficiency and logistical. Implementing the changes would involve many difficulties despite
repeated attempts of closing factories, consolidating departments and concentrating production of standardized
products. Desired result is not reached and Philips remains with fewer profit margins very close to bankruptcy in the
90's. The massive task of re – organization (layoffs, reduction plants, the sale of inefficient units and focus on
marketing) of two CEOs in the 90's formed the basis for possible change in product strategy and growth of mid-2000.
Matsushita: The purpose of Matsushita Corporation of changes to the 90 was an imitation of Phillips capabilities in
terms of the creativity of their subsidiaries, decentralization of sales and marketing and allowing a degree of changes
in the products to fit different markets. Implementing the goals of Matsushita in two main ways. One concentration
and administration staff bodies to create an administrative avenue lean and efficient, and concentration of production
centers and the expansion of production capabilities for enterprise. On the other hand, expansion and decentralization
of power and authority of sales and marketing agencies. The result was the continued growth and increasing sales and
the company's cash to purchase capabilities of giant American companies (MCA). The financial crisis of the 90 Japan
dealt the cards of the robust growth of Matsushita. Moreover, headquarters was not committed enough to match the
look of the general financial situation in Japan. However, changes in the new company's management strategy early
in 2000 such as decentralization down and focusing on the needs of various markets and increasing the flexibility and
the company's response in terms of matching services and products allowed the company to rise back in terms of sales
and profit.

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What changes has each made, and why has change been so hard for each? What changes should Phillips and
Matsushita make to their strategy and organizational structure?
Both companies felt that when times got tough, downsizing was the way to go, however, they should have invested
more in R&D.
Philips suffered from poor marketing
1. preferred their initial strategy more (would be easier presently)
2. Forced to change most of their business- became 'lifestyle'
Matsushita: 1- Heritage sometimes got in the way, 2- More effective at shaping their business (but it took awhile), 3-
Bet correctly (VCR, screens)
Change is difficult due to established doctrines and either set in power hoarding or power deferment mode
- Structure initially beneficial but did not change fast enough

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