Philips Maps Out a New Direction - Case Study Example

Philips Maps Out a New DirectionPhilips: A Need for Change:The case presents a strategy undertaken by Philips CEO Gerard Kleisterlee to reorganize and refocus the operations and business units of the company. Given the slow-paced growth of the company in past years, such a strategy was needed to get the company back on the growth-track. Prior to the implementation of the strategy, the company had a wide range of low-margin products, and more than half a dozen business units which worked at cross purposes due to lack of communication and coordination.

Among other things, the strategy is intended to streamline work processes, and to increase brand recognition, which in turn will help the company achieve revenue and profit margin growth targets. Focus of Reorganization StrategyThe main focus of the strategy undertaken is to divest low-margin products, and to cut down the number of units into just 3 divisions: health care, lighting, and consumer “lifestyle” products. Strengths of New Strategy By cutting down to just 3 major divisions, the company’s focus is likely to sharpen.

Using multiple business units to produce a wide range of products would most likely result of wastage of resources, cost inefficiencies, and lack of a unified direction for the company as a whole. (A&AS, 2002)Divesting low-margin products saves costs, and is seen as a strategic business move. (A&AS, 2002)“Once viewed as an admission of organizational failure, divestitures are increasingly accepted as an important means of realizing value.” (A&AS, 2002)Cutting down to just 3 units therefore, among other things, aims to reduce operating costs.

Divisions which need similar raw materials, man-power and expertise are merged into one unit so that resources can be utilized more efficiently. (A&AS, 2002)This sort of reorganization would also increase brand awareness and recognition, as the products would be better positioned in the minds of the consumers. Producing a wide range of products under one brand name usually creates confusion for the consumers as to what exactly to identify the brand with. By divesting low-margin products, and focusing a narrower and better defined product mix, this confusion would be minimized.

(A&AS, 2002)Potential Problems for PhilipsThe sort of restructuring which entails divesting products and cutting down number of work units usually results in laying-off employees. This could result in unemployment, not to mention lower job security for existing employees. As is mentioned in the case, Philips faces problems when it comes to brand recognition, as Philips products are marketed in North America under a variety of names. Also, Philips LCD television technology currently has the No.

2 spot in China, however, this success could be short-lived if China pumps up its own capacity and takes back the market. (A&AS, 2002)Recommendations To reduce any chances of job insecurity, the management needs to adopt a policy of open and clear communication with its existing employees. This communication should be aimed towards lowering any feelings of apprehension they might have. (A&AS, 2002)Focused marketing strategies which build a specific brand image for the company should be embarked upon.

This would reduce the problems of low brand recognition, as the consumers would know exactly what to identify the brand name with. References:Assurance and Advisory Services (2002) Divesting for Success. Retrieved May 23, 2008 from http://www.kpmg.com.au/aci/docs/divesting-success.pdf.