VS.
A new century, a new round
MBA 290G
November 14, 2007
Team One
Sohail Gondal, Vince Law, Que Anh Nguyen, Jason Stauth
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.
1892
Light bulb
factory
1912
Incorporation
1918-1930s
Vacuum tubes,
radios, x-ray tubes
1963
Audio cassette
tape
1940
Moved management
& research to US and
England
Germany
Belgium
1982
Compact Disc
with Sony
1970’s
Adoption of
Matshusita’s VHS
over V2000
videocassette
1971-present
Reorganization of company
- 7 CEOs -
Matsushita Electric Industrial Co.,
Japan
•
•
•
Brands and divisions:
– Panasonic, National, Nais, Quasar, Technics, Ramsa, Rasonic
In 2006, $79 billion in sales
Ranked the 59th company in the world in 2007 by the Forbes Global 500
1918
Duplex lamp
sockets
1940’s
Light fixtures, motors,
electric irons
1927
Bicycle lamp
“National” brand
1960’s
Television sets
“Panasonic” brand
1974
Purchased
Quasar from
Motorola
1989
Japanese stock
market crash
1979
Expanded
“Panasonic”
brand to Europe
2006
No more analog TVs.
Concentrate on digital.
2004
Panasonic as primary
global brand
Comparison of the starting positions of the
two organizations
Philips
Matsushita
Structure
Matrix
Hierarchical
Decision making
Decentralized
Centralized
Staffing
Key staff local
Key staff ex-pats
Strategy
Technical innovator
Fast follower
2006 Sales by product line and region
Sales by Region
Sales ($B)
90.0
80.0
70.0
Europe
60.0
Japan, Asia
North and South America
50.0
40.0
30.0
20.0
10.0
0.0
Matsushita
Matsushita Product Sales by Category
Philips
Philips Product Sales by Category
Other
Other
JVC
AVC Networks
Lighting
Medical
Systems
MEW and
PanaHome
Components
and Devices
Home
Appliances
AVC=audio, video & communications; MEW=Matsushita electric works
DAP
CE
CE=consumer electronics; DAP=domestic appliances and personal care
Matsushita overtook Philips in the mid 80’s
and built a formidable lead
90
80
70
60
50
40
30
20
10
0
Philips
Matsushita
2000
1995
1990
1985
1980
1975
1970
35.3
68.9
40
78.1
33
37.8
21.8
24.9
17
13.7
10
4.5
4.2
2.6
Focus on growth in different industry sectors
Matsushita: Growth by Sector
Philips: Growth by Sector
100%
80%
Other
60%
Lighting
CE
40%
DAP
Medical Systems
20%
0%
2005
2006
Philips Semi Div
2004
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Other
JVC
MEW and PanaHome
Components and
Devices
Home Appliances
AVC Networks
2005
2006
2007
Semiconductor
Division:
• 15% total sales
• 17% EBIT
Factor conditions
Philips
Skilled
resources
Geographic
Location
•
•
•
Matsushita
Good supply of Dutch
engineers / sales talent
Tap into EU / US talent
•
Proximity to Germany
caused operations to be
moved abroad during
WW II
•
•
Good supply of Japanese
engineering and
commercial talent
Value-added per hour
68% higher than EU
Proximity to low-wage
Asian countries for
manufacturing
Demand conditions
Philips
•
Market
size
Dutch market too small
to absorb mass
production of
electronics
Matsushita
•
– Late focus on export
market (1950’s)
– Expansion to foreign
markets (1899)
Market
maturity
•
•
Global Ops provided access
to local trends and needs in
foreign markets
Products focused on local
markets
Japanese consumers
represents a significant
market
•
Japanese customers are
highly demanding of
quality and innovation in
electronics
Related & support industries
Philips
Related
industries
Support
industries
Matsushita
•
Locally weak, but strong
EU (Siemens) and US
(GE) competitors
•
Strong presence of
quality competitors
•
Locally weak, but strong
EU / US value chain
•
Strong presence of
players across
electronics value chain
Approximately 120
electronics company in
Japan
•
Firm strategy, structure & rivalry
Philips
•
Strategy
•
•
Structure
•
•
Rivalry
•
Matsushita
Stay focused on core
products while competitors
were diversifying
Emphasized innovations &
technological prowess
•
•
Decentralized global
operations, strong NOs
Joint technical and
commercial leadership
•
•
In house competition between
technical and commercial
functions
No national rivals
•
•
•
•
Diversified product line
Focus on operational
excellence
Fast-to-market, “Manishita”
Highly centralized
Small business environment
with divisional structure
“One-product-one-division”
In house competition
between divisions
Fierce competition from
Japanese electronics firms:
JVC, Sony, Hitachi
How Philips’ strengths and core
competencies became its weaknesses
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
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
Strong culture at
centre
Fast follower strategy
1989
Market Crash
Over-reliance on
centre for innovation
Weak
entrepreneurial /
innovation ability
A comparison of the two organizations attempts
to shift their strategies
1982 - Operational
Localization
•
1986 - “Matsushita Bank”
•
1999 - “Simple, small,
speedy and strategic”
High
•
Degree of
centralization
Matsushita
Philips
•
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
Low
While Philips is amongst the biggest R&D
spenders in the industry…
The worlds top ten R&D investors in electronic and electrical equipment
3793
2884
2003 R&D spend (£m)
2268
1983
1595
1223
726
659
Source: UK Department of Trade & Industry – R&D Scoreboard
560
437
… 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
79,6
(in billions of euros)
74,2
75,6
66,9
63,1
64,2
57,3
64,9
56,8
46,7
43,5
37,1
38,5
26,5
GE
(USA)
30,4
28,6
17,1
IBM
(USA)
Siemens
(D)
HewlettPackard
(USA)
Hitachi
(JPN)
Matsushita
(JPN)
Sony
(JPN)
36,3
21,0
Samsung
Electronics
(KOR)
Toshiba
(JPN)
NEC
(JPN)
Despite the attractiveness of foreign markets
for electronics products…
The top ten world markets for electronic and electrical equipment
779
32.3
% share of world market
341
14.1
166
6.9
149
94
6.2
3.9
88
3.6
volumes in € billions
64
63
55
37
2.7
2.6
2.3
1.5
Source: Siemens AG, Nov 2003
… Matsushita still generates the predominant
amount of its sales from Asia.
Sales by geographic segment
Philips
Matsushita
Asia &
Others
21%
Domestic
4%
US
28%
Other
44%
Europe
13%
Domestic
51%
China
6%
Europe
18%
Source: 2006 Financial Statements
North & Soth
America
15%
Source: 2007 Financial Statements
While lagging in sales, Philips has managed
higher net income
100
80
Possible reasons for Net
Income differential
60
40
20
0
Matsushita
Philips
10
8
6
4
2
0
-2
-4
-6
Matsushita
Philips
•
2002
2003
2004
2005
2006
2007
0
38.9
66.2
34.8
66.9
36.1
77.9
37.4
79.5
39.2
81.4
2002
2003
2004
2005
2006
2007
0
-4.6
-0.2
1
0.4
4.1
0.5
4.2
1.4
7.8
1.9
Philips has disposed of many
businesses that has resulted in net
income being supplemented by
income from discontinued
operations e.g., in 2006
Income from continued operations
€0.9Bn
Income from discontinued
operations
€4.5Bn
Net Income
€5.4Bn
•
Exchange rate effects due to weak
Yen
•
Tax incentives to Philips?
Philips stock price growth has outperformed
Matsushita
Philips has even outperformed GE and Sony
Philips is on par with DJI and better than
S&P500 & Nasdaq
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


Corporate venturing units have “generated
decidedly uneven financial returns”
Success rates for different types of venture unit
30%
Successful
Unsuccessful
25%
20%
15%
10%
5%
iv
ix
ed
M
le
g
N
ew
ob
j
ve
nt
ec
t
ur
i
rin
nt
u
ve
ty
Eq
ui
Pr
i
va
t
e
es
ng
g
g
ve
st
H
ar
ve
In
no
va
t
io
n
ve
nt
nt
u
ur
in
ur
i
ve
nt
te
m
sy
s
Ec
o
rin
g
ng
0%
Source: The future of corporate venturing, MIT Sloan Review, Fall 2003
Apple’s Core Competencies
• Many-to-one supplier
relationship
• Close supplier
relationships
• Complete off-shore
production
Retain bargaining
position and drive
down costs
Maintain Control over
suppliers and costs
1
Managing the
supply chain
2
+
Core strengths
in design &
branding
=
• Flat/small structure,
young/innovative culture
• User-centric design
and marketing
• Focused product line
• Strong brand loyalty
Own the customer
relationship = higher
margins
High margins &
Dominant market share
(ipods)
Comparison: Philips, Matsushita, Apple
Consumer Electronics Value Chain:
Component
& Material
Suppliers
Assembly
Design
Development
Marketing
Retail
Customer
Organizational Structure
Centralized
Innovative
Formal
Firm Culture
Quick, flexible,
close to the
market and
the customer
Quick to market (follower),
operational excellence
Localized
Innovator, but fail to
commercialize product
How to compete with Apple in CE
• 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
• 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