Philips Vs Matsushita
The root to both companies’ misfortune was the change in industry life cycle. Consumer electronics industry reached maturity and was already entering decline phase. Fierce competition led to cost efficiency being the most important factor for achieving competitive advantage. Cost efficiency could be achieved by low wages, scale economies, and low overheads. That is why Philips and Matsushita began outsourcing its manufacturing facilities and “slimming” its workforce. Despite the fact that both Philips and Matsushita had extremely diversified product lines, with some products being on the different life cycle stages, hypercompetition and shortened life cycle made it virtually impossible to capitalize on them.
As we can see, key success factors are changing over time. NOs structure that brought Philips to the top became a burden. Matsushita’s highly efficient centralized operations were not able to deliver needed results. Therefore, we can see that firms that were successful in one phase of the industry’s development may have to acquire rather different resources and capabilities in order to be successful in the next phase.
Industry evolution posed a huge challenge to managers: strategy and organizational structure should be adapted to keep pace with the rate of change in the external environment.
The electronics industry is undergoing rapid changes. In order to develop strategies, the key characteristics of the electronics industry must be considered. These characteristics include:
– the integration of products and system functions
– escalating research and development efforts
– the need for standardization with regard to product specifications
Since Philips and Matsushita operate in the same industry and the environment, generally same courses of action could be taken. The following strategies might lead the way out of their financial troubles:
1. Increase the pace of innovation in the face of stepped up competition.
Shortened product life cycle challenges the entire consumer electronics industry now, so nobody can rest on their laurels. Therefore, the leaders like Philips and Matsushita must increase the pace of innovation in order to maximize the profits from new products, while dedicating less energy on existing products that are quickly becoming commodities. Philips and Matsushita have a great innovation heritage. To remain leaders both companies have to invest in maintaining world-class innovation and leverage intellectual property, and drive productivity through operational excellence. Profitability might be increased through re-allocation of capital towards opportunities offering more consistent and higher returns, leverage the brand and the core competencies to grow in selected categories and markets.
2. Create a more flexible organizational structure.
Philips has to break down the organizational structure from one focused on product development and manufacturing to a more flexible model that also emphasizes sales, marketing and cooperative competition allowing for shared development of new technologies. Philips needs to integrate products and procedures and merge product divisions where appropriate.
Matsushita’s one-product-one-division history still influences its organizational structure a lot. Products are often duplicated among divisions. To eliminate duplication and improve allocation of R&D funds, Matsushita has to narrow the product categories down.
3. Engage in alliances and partnerships to expand the market into new categories that address the changing needs of consumers.
Closer cooperation between companies in the industry is crucial to their success. To strengthen market position, Philips and Matsushita have to focus more on acquisitions and strategic partnerships. Flexibility is crucial in the process. Market changes and technological developments must be noticed early in order to develop an appropriate response to those. Therefore, companies need to build partnerships with key customers and also suppliers, both in the business-to-business and business-to-consumer areas.
As I have mentioned, hypercompetition leaves no time to waste. New products have to be developed and introduced to the market as quick as possible. It requires enormous amount of resources, know-how and expertise. Even such huge companies as Philips and Matsushita are not able to do it on their own. Thus, increased collaboration with competitors is the key to maximizing the value of technology investments.
Although these three strategies are better implemented as a complex, the first one – increase of innovation pace – is the most important. Adapting to changes in markets and consumer preferences alone is not enough to ensure future success. Competitive advantage is available only to leader companies who act as initiators of change, not preservers of the past.
The “new strategy paradigm” of Hamel and Prahalad emphasizes the role of strategy as a systematic and concerted approach to redefining both the company and its industry environment in the future?. Anticipating the future is not feasible given the unpredictability of the business environment, the challenge is to create the future. That is why Philips and Matsushita should strive to create new products, new markets and new opportunities for growth. However, strategic choices that take a company beyond its core competencies involve massive risks.
Given the competitive history of both companies we can predict that they would try to outperform each other, coming up with competing alternative technologies. This kind of competition can only hamper their growth. It is time for them to work with each other and unite in the face of growing competition to ensure success in the new century. New century does not have to bring a new round.
Both companies’ changing strategic postures and organizational capabilities led to the major restructuring each company was forced to undertake as its competitive position was eroded. However, it is extremely difficult to overcome deeply set administrative heritage. Although Matsushita and Philips followed different strategies – classic “global” and “multinational” models respectively, both of them proved to have limitations.
With a near total saturation of the consumer electronics market, companies need to look beyond their boundaries and add value to their offerings, and sometimes it means total reinvention of the company.