Case Study Analysis: NV Philip
1. Changes in Philips environment in the 1960s and 1970s
As Philips is a company that competes fiercely both in the domestic and international markets, decades of its operation will expectedly be characterized by changes both positive and negative. For instance, the company has experienced one of its most grave economic failures in history, and also one of its insistences of coming back up, even if at that time, its operational performance was still below par. Initially, Philips followed a structure wherein the individual sub-units operate independently from its main headquarters. This system began during World War 2 when Eindhoven/Netherlands was still under German rule, and continued, in fact, developed further, in the 70s (Davids, 2004). Philips and its subunits were highly complex and bureaucratic due to too much differentiation in management among branches depending on geographical locations.
The changes in trade and the competitive environment of the market during the 60s and 70s is one of the reasons why Philips changed. For instance, the firm decided to remove trade barriers, and actively participated in new agreements in world trade, as well as new trade bodies such as GATT and EC, which made improvements in market competitiveness. Due to this, other strong competitors in the market rose, such as Matsushita and other Japanese electronic companies. These companies even emerged in Philips’ territories. The competition between Philips and Matsushita will eventually continue to the present times (Bartlett, 2009).
The boost in costs incurred for research and development also happened whilst product lifecycle and time for recovery of investments decreased. The short product life cycle also limited the ability to mass produce, which is crucial to bringing in significant players in the business and make successful product placements and profits. Philips was so engrossed with its domestic market, even those operated through national organizations, that it failed to act immediately on the growing number of competitors whose strategies successfully altered the dynamics of the global market, rattling the prior established position of Philips (Volmer, & Univerity, 2007).
2. Reasons why Philips had low profits during the 1970s-80s
One of the main reasons why Philips suffered low performance in terms of profits in the 70s and 80s was due to its failure to go accordingly with the changes of the market dynamics brought about by innovative strategies of global competitors (Theodore, & Salmon, 1999). For instance, the structure of Philips is very divisive, with its sub-units wanting to operate as independent from its Eindhoven headquarters as possible. The matrix structure of Philips emphasized separation of vital functions among its entities such as product divisions doing the R & D, and national organizations managing daily operations and implementation of strategies. Another is the poor performance made by dual leaderships within the firm’s national organizations. There was even an instance when the national organization operating in the US rejected V2000, the VCR format it designed personally, and used VHS Matsushita instead. Poor coordination that resulted from such systems definitely established he fact that Philips was economically doomed in that decade (Heerding, 1988). When the time came for Philips to realize their lack and decided to do something about it. the dynamics of the market is changing so fast that they missed the opportunity to act accordingly.
3. Philips’ must-do actions to survive the changing global environment
First off, Philips should unify its organization, in such ways that all its sub-units and the main headquarter work and operate towards similar set of goals and mission, and adhere to the same set of policies, rules, and strategies. Balance is key. National organizations and product divisions must not dominate one another, but work well together. Doing so would remove significant problems such as duplication of costs and resources spent for doubled operations (e.g. national organization doing one operation that product division similar operation, with doubling of efforts caused by poor coordination). Following the establishment of a unitary working body, improving the coordination within the organization must be established. This includes sharing information, plans, goals, accomplishments, and innovation programs. While bureaucracy may not be eliminated, it can be minimized or managed so as not to compromise the speed by which required decision-making processes can be accomplished. Lastly, being flexible towards the ever changing dynamics of the market is crucial. To act efficiently in this aspect, innovation is a much-needed component (Volmer, & Univerity, 2007).
4. Sources of inertia within Philips and how it can be overcome
The sources of inertia within Philips, as presented previously, are heavy bureaucracy, divisive management and inability to cope up to the changes in market dynamics. Bureaucracy is an indication of status quo that may be too rooted and powerful to change or even shake. However, if the sustainability and economic performance of a firm is in the balance, there will be no other way but to shake or break the existing bureaucracy within an organization, and instead create a culture-oriented environment in all its divisions (Tassey, 1990). Diversity also will increase the capacity of the organization to create new ideas and innovate in answer to the fast changes in global market dynamics, e.g. the use of advanced technology in businesses.
Secondly, the separate structure of the firm is another inertia that might cause unhealthy working environment as people, especially the members of the executive managements are pitted against one another. Increased centralization in both management and operations brings about effective communication, close coordination, and balanced structure which will result to efficient handling of costs, and consumption of resources.