Philips NV

 Philips’ Traditional Organization

 Philips’ various national organizations

began to operate independently.

 Following the war, top management felt that the

company could be most successfully rebuilt
through its national organizations.
 There were several reasons for this belief.
 First , high trade barriers made it logical that
self-contained national organizations be established in
each major national market.

 Second, it was felt that strong national organizations would allow Philips to be
responsive to local demands in each country in which it
competed.

 third, given the substantial autonomy

that the various national organizations had gained during
the war, top management felt that reestablishing
centralized control might prove difficult and yield few
benefits.
 Environmental Change
From the 1960s onward, a number of significant
changes took place in Philips’ competitive
environment that were to profoundly affect the
company.

 First
due to the efforts of the General Agreement on
Tariffs and Trade (GATT), trade barriers fell
worldwide. In addition in Philips’ home
base, Europe, the emergence of the European
Economic Community, of which the Netherlands was
an early member, led to a further reduction in trade
barriers between the countries of Western Europe.
 Second
during the 1960s and 1970s a number of new competitors
emerged in Japan.
Taking advantage of the success of GATT in lowering trade
barriers, the Japanese companies produced most of their
output at home and then exported to the rest of the world.
The resulting economies of scale allowed them to drive
down unit costs below those achieved by Western
competitors such as
Philips that manufactured in multiple locations. This
significantly increased competitive pressures in most of the
business areas where Philips competed
 Third
due to technological changes, the cost of R&D
and manufacturing increased rapidly. The
introduction of
transistors and then integrated circuits called
for significant capital expenditures in production
facilities—often running
into hundreds of millions of dollars. To realize
scale economies, substantial levels of output
had to be achieved.
Moreover, the pace of technological change
was declining and product life cycles were
shortening. This gave companies
in the electronics industry less time to recoup
their capital
investments before new-generation products
came along.
 Finally
as the world moved from a series of fragmented national
markets toward a single global market, uniform global
standards for electronic equipment were beginning to
emerge.

This standardization showed itself most clearly in the

videocassette recorder business, where three standards
initially battled for dominance—the Betamax standard
produced by Sony, the VHS standard produced by
Matsushita, and the V2000 standard produced by Philips
 Organizational and Strategic Change

 By the early 1980s Philips realized that, if it was to

survive, it would have to restructure its business .
Its cost structure was high due to the
amount of duplication across national organizations,
particularly in the area of manufacturing.
 The first attempt at change came in 1982
when Wisse Dekker was appointed
CEO. Dekker quickly pushed for
manufacturing rationalization centers
that served a number of national
organizations and closing many small
inefficient plants , creating international
production.

 He also pushed Philips to enter into

more collaborative arrangements with
other electronics firms in order to share
the costs and risks of developing new
products. In addition,
In addition

 Dekker accelerated a trend that had already begun within the

company to move away from the dual leadership arrangement
within national organizations replacing this arrangement with a
single manager.

 Dekker tried to “tilt” Philips’ matrix away from national organizations

by creating a corporate council

 In 1986, Dekker was succeeded by Cor van de Klugt. One of van de

Klugt’s first actions was to specify that profitability was to be the central
criterion for evaluating performance within Philips.

 van de Klugt in theory reestablished Eindhoven’s control

over the North American subsidiary
 van de Klugt was replaced by JanTimmer. Timmer quickly
announced that he would cut Philips’s worldwide work
force by 10,000, to 283,000, and launch a $1.4 billion
restructuring.

 the share price down by 7 percent. he sold off

Philips’s minicomputer division—which at the time was losing
$1 million per day—to Digital Equipment. He also announced
plans to reduce costs by $1.2 billion by cutting the
work force by 55,000. In addition, he entered into a strategic
alliance with Matsushita,