The Rise of Philip as the Leading Consumer Electronics in the World - Case Study Example

Supervisor Question Account for the rise of Philips to become the leading consumer electronics company in the world and its subsequent loss of leadership to Matsushita In doing this evaluate Philips' core competencies and its key weaknesses in the context of a changing external environment Question 2 Assess the changes in Philips' international competitive strategy over the period of the case and briefly outline the reasons why successive management teams found it so difficult to improve its competitiveness. November, 2008 TABLE OF CONTENTS. 1.0 General Introduction 1.1.1 Question 1 1.1.2 The Rise of Philip as the Leading Consumer Electronics in the World 1.1.3 Philips and Poters Five Forces 1.1.4 Philips and Porters Competitive Advantage 1.1.5 Philips and The core Competencies and Core Resources 1.1.6 The subsequent loss of leadership to Matsushita 1.1.7 Philips Key Weaknesses in the Phase of Changing Environmental factors-The SWOT 2.0 Question 2 2.1.1 Introduction 2.1.2 Changes to Philip Strategies Over the Period of the Case 2.1.3 Why Successive Management management teams found it so difficult to improve its competitiveness 1.0 General Introduction Today's business environment has increasingly become more turbulent, chaotic and challenging than ever before. To survive, it is vital that a firm can do something better than its competitors (Wonglimpiyarat 2004:1). Globalisation has not only altered the nature and the intensity of competition but has had to dictate and shape organisations in terms of what consumers wants, how and when they want it and what they are prepared to pay for it (Hagan 1996:1). Kanter (1995:71) on his work of "Mastering Change" argues that success in the present day business is not for those companies that re-engineer the way they do things, or for those fixing the past. According to Kanter (1995) such an action will not constitute an adequate response. This is so because success is based on an organisation's ability to create, rather than predict the future by developing those products that will literally transform the way the world thinks and view it self and the needs (Kanter 1995:71). Within the context of today's global competition, businesses and firms no-longer compete as individual companies but try to corporate with other businesses in their activities (Wu & Chien 2007:2). These researchers went further to argue that, this strategy has become quite common in many businesses including the electronic chain. The conventional vertical integrated company based business model is gradually being replaced by collaborative relationship between many fragmented, but complementary and specialized value stars and constellation (Wu & Chien:1). An alternative approach towards organisational success, one which is becoming increasing prominent and has attracted the sustained attention of both domestic and international business scholars are core competences, capabilities and resources (e.g. Madhok 1998, Prahalad & Hamel 1990, Hamel & Prahalad1994 ). In today's global business environment it is no longer sufficient simply to meet customers demand as time quality and cost have become increasingly important in the phase of increasing competition (Petts 1997:551). According to Higgins (1998:2), "customers don't always know what they need or even that there is a problem to be solved." Success awaits those companies that recognize the fact that, to be successful and satisfy customers, it is often necessary to lead customers into recognizing these needs (Higgins 1998:2-3). In the light of this, the aim of this paper is to examine how Philips lost its leadership position in the light of globalization and why the company's had difficulties in changing the strategy. 1.1.2 The Rise of Philip as the Leading Consumer's Electronics in the World Philips is an electronic company that began in Holland specializing in the production of light bulbs. The company was founded by Gerard Philips and the father who later recruited Anthon, Gerard's brother with outstanding marketing skills. In its first three decades of its operations, the company, assumed leadership role in the electronic market. Thanks to its innovative ideas, huge investment on research and development, good employee's retention, profit sharing, Gerard technological prowess and the company's cost focus strategy. This will be analysed further using certain analytical models. 1.1.3 Philips and Poter's Five Forces Porters five forces framework was originally developed as a way of assessing the attractiveness (Profit potential) of different industries. As such it can help in identifying the sources of competition in an industry or sector (Johnson et al 2005). Philips rise to leadership position in the period 1882 to 1930 in the electronic market can be explain using Porters five forces. Philips had just one product, the light bulb that created a high brand identity and loyalty from the Philip's customers. Thus, for its single product brand, it customer's had a lower bargaining power as they faced a higher switching costs. As the brand equity of the Philip's brand grew within these periods, consumer's propensity to substitute was almost zero; this was insulated by Gerard technological prowess innovation that added new product functionality to the light bulb product. While at the time, competition for this single brand was relatively low as compared to the period after the 1930, new management strategies and accounting methods were applied as old plants were scrapped off and replaced with new technology. Its leadership position in research and development, coupled with high capital requirement posed big threats to new entrants at the time.Customer's loyalty to the Philip's brand discourage potential entrants. Gerard technological prowess innovations turn into core competencies that act as an entry barriers and a threat to new entrants. Its glocal strategy with foreign countries gave suppliers a low bargaining power. New products were launched at the right time. Porter (1985:4) contends that the Five Forces define the rules of competition in any industry and at the same time marks the bases for understanding a company's success. 1.1.4 Philips and Porters Competitive Advantage At the most fundamental level, Porter (1985) contends that firms create competitive advantage by perceiving and discovering new and better ways to compete in an industry which is ultimately an act of innovation. In this regard Porter assumes that innovations shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. This situation explains Philips rise to leadership position in the electronic industry in which Philip Gerard innovative ideas shifted it in to a generic focus and built its innovative resources and capabilities. Porter further argues that once a company takes control of the five forces framework, the company becomes the pace setter. The researcher identify typical causes that shift competition to a company's advantage: shifting input cost or availability, new technologies and shifting buyer's needs. Philips at the time was indifferent from this. Competitive advantage can be referred to as a situation whereby a firm is able to provide a particular service in an industry better than its competitors will do thereby increasing its market share and profit potential (Johnson et al 2005). Competitive advantage is determined by the core competencies of the firm, which are the particular skills and techniques as well as staff and suppliers achieved by the firm which are otherwise not available to other firms in the industry (Johnson et al 2005). Cost leadership Low product system Low life cycle cost for Philip's product High reliability of Philips product and non intrusive serviceability for Philips electronics. Philips unique resources, trademarks, proprietary know-how, uninstalled and installed customer base Differentiation Adequate advanced functionality Aesthetic product features Integration capabilities and upgradeability, convenient product availability in terms of quantity, location acquisition and installation. Confidence in the product Equity of Philips brand Cost focus Differentiation focus 1.1.5Philips and the core Competencies and Core Resources Competencies provide a means of looking at those behaviours that differentiate the "best from the rest" and a common language for talking about critical on-the-job behaviours (Johnson et al 2005). The core competences of Philip at the time include its valued employees, it corporate brand, and resources. Innovative ideas of the founder and a differentiation strategy aimed at delivering products and/or services that are different from the product mix of the competition were unique at the time. 1.1.6 The subsequent loss of leadership to Matsushita Unfortunately, for the management of Philips, things didn't remain the way it has been forecasted. Its over reliance on a single product matrix, it failure to be more responsive on its operations, and failure to feel business opportunities as they become due with changing time reduced the company's gross sales. The situation was aggravated further by the absence of a unique business management matrix, national organizations becoming more autonomous and irresponsible, rising costs and failure to take advantage of rising costs to low wage countries. In all, the internal problems in the company within the periods after the war pushed the company into a tight position. Series of changes, at the board and management only aggravated the company's situation at the level of the press. The main competitor strategies were tied and linked to changing environment, while the country first of all used multidivisional strategies, the strategy changed depending on local values and pressure from the environment. Matsuchita was more socially responsible to the various stakeholders with the changing time. The company emphasize, on cost leadership and differentiation within a very strong culture and mission statement. According to Johnson & Scholes (2007), organisational culture is a tool in management strategic armory which appears to be invisible yet it influences "why" "how" "what" and "when" things are done in an organisation or "it is the way things are being done here" (Johnson & Scholes 2007:66). This was built in well defined mission, vision and objectives statements all linked to changing environment. By 1952, the company had 5000 products as opposed to just 12 for Philips. 1.1.7Philips Key Weaknesses in the Phase of Changing Environmental factors-The SWOT An organisation does not exist in isolation. Under the resource based view, it is thanks to the environment that new resources are sourced out; stakeholders interactions are facilitated, new partnership develop and created (Sacconi, 2004). Through and understanding of the external environment, firms take advantage of the resources available in its environment; define the nature and structure of its activities. In order to maintain service, quality and logistic standards, companies periodically audit their environment and compared to overall corporate performance through benchmarking. Companies that, fail to take advantage of its environment will lag behind. Through an environmental analysis will understand how a firm's competitive position is affected by different forces. More and more companies are engaging in corporate social responsibility reporting, which helps major stakeholders to better understand how the company interacts with its society. (Sacconi, 2004). It is only through environmental scanning and analysis that we can portray this better. Philips, the once electronic giant lost its leadership position because of failure to act with its changing environment. 1.2:2 Philips PLC and SWOT Analysis Threats Rise of competitors from China Strong and diverse brands of Matsushisa Competitors faster to market National Organisations irresponsible Difficulties finding their own suppliers, or owning their own farms. Matsushisa market leader, adapting products and strategies to changing environment. Weaknesses Some dissatisfied customers Drop off of better products Key Niche players The lack and absence of unique product with total differentiation from those of competitors. The lack of ownership of exclusive patents. Dropped and sold of many products that have not delivered reasonable profits Lack of integration of marketing, production and R&D in developing pr While Matsushisa was known for its fastness to market and nicknamed the "copycat" Philips was known for innovation but lack the marketing break through. Thus, even products that originated from Philips, huge market shares fell to competitors like Sony. The main competitor easily decentralized from its multidivisional structure following pressure from the environment. 2.1.1 Introduction Organizational change or change in general can be defined from a variety of points depending on the perception of the user. An individual or employee in an organization may look at a new post or position as a change while higher management may feel it is unimportant. (Cao et al, 2000, p187). Changes viewed also by management may also not be looked upon as change by outsiders like competitors or suppliers. This has led to the categorizing of change in various ways, some of which include strategic and non-strategic change, incremental and radical change, changes of identity, co-ordination and control, planned and emergent change, change in terms of scale, human-centered change in terms of individual, group and inter-group or organizational level, quantum change and so on. (Cao et al, 2000, p187; Todnem, 2005, p372). Changes can also be structural, that is dealing with the physical alteration of an organization like its buildings and equipment or even employees 2.1.2 Changes to Philip Strategies Over the Period of the Case The company started as a single product innovative research centre company in 1882, laying emphasis on employee's value through better working condition and profit sharing. The company by 1889 hired it first export manager and started serving foreign markets through exports. By 1912 however, the strategy changed following signs of overcapacity in the electric lamp industry. The company built sales organizations in foreign countries, with all other functions centralized in Eindhoven. Foreign joint ventures were operated as well to benefit from local advantage. In 1919, the strategy changes to that of cooperation with competitor (e.g., agreement with General Electric). Centralisation was now replaced with decentralized sales with autonomous marketing. With more products diversification with in-house competition also encouraged. During the war, emphasis was on assets and resource transfer abroad. Individual country organisation became more independent. Most National organizations acted with respect to local values. After the war, NOs took major responsibility for financial legal and production, the Product Divisions Pos, was responsible for development. This time corporate level structure was represented as a kind of geographic product matrix. In the late 1960s, independent country subsidiaries were under watch as series of CEOs employed attempt to rebalance the power. The next three decades after the 1960 were characterized with restructuring, cost cutting, reduction in production units. The Company was finally restructured within four global structured regions. Marketing and production were linked together. 2.2 Why Successive Management management teams found it so difficult to improve its competitiveness The successful management of the change for Philips would have been successful if it involves the taking of 'critically systemic' decisions with respect to the use of multiple methods in relation to the problems encountered. (Cao et al, 2000, p189). The effectiveness of process change can only be achieved if there are structure changes to support it. (Cao et al, 2000, p190). It is also relevant to know how the different elements in the change system relate or affect one another especially with regard to sequence and space. (Cao et al, 2000, p190). The management of change in every organization depends on how the organization is structured. (Hoogendoorn et al, p 15). This change process should be managed in such a way as to cause very little friction while giving out clear cut division of responsibilities and roles to the respective change actors. Unfortunately, at Philip, agency and empire building dominated the day. Management of the NOs were more important in their personal power and prestige and not value creation, there by creating conflicting interest. Those charged with the responsibilities to institute change failed to remove blockers of change" They failed to convince; the present was worst off than the unknown future. The NOs independence gained during the war represented the main problem. To effectively manage this management change, we need to recognise the importance of blending the charismatic and instrumental dimensions of the change leader. (Graetz, 2000, p553) Strong interpersonal skills are a good tool and provide a nexus between the charismatic and instrumental roles of the change leader. (Graetz, 2000, p 553). Unfortunately, all the leaders lacked this charisma; they were offered the wrong job. In addition, as time goes, the organisation will grow both in size and market. Focused leadership is required to make an organization able to create and sustain competitive advantage through diversity with respect to organizational change strategies whose aims are to manage diversity. (Combs, 2002, p4). This diversity challenge for Philips is to facilitate a work environment that allows and encourages an appreciation of a wide range of individual characteristics. (Combs, 2002, p4). The solution to this type of challenge is to incorporate principles of self-efficacy in the diversity training. (Combs, 2002, p4). The type of leadership required to meet this challenge should be task specific while at the same time broad based and diffused. (Combs, 2002, p4). No wonder, the main competitor, Matsushisa emphasized on this. References Cao, G., Clarke, S., Lehaney, B. (2000) A Systemic View of Organizational Change and Total Quality Management. The TQM Magazine Vol 12 No 3 pp. 186-193 MCB University Press. Hagan, M. C., (1996).The core competence organisation. Implication for Human Resource Practices. Human Resource Management Review Vol.6, No 2. 1996, Pp. 147-164 Hamel, G. and Prahalad, C. K. (1994). Competing for the Future. Boston, MA: Harvard Business School Press. Johnson, G. and Scholes, K., (2007). Exploring Corporate Strategy, Prentice-Hall, Europe Kanter, R. M. 1995. "Mastering Change." 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