Philips: A New Century, A New Round

1663 words - 7 pages

Philips Electronics N.V, headquartered in the Netherlands, has had a successful run throughout the company's existence. Fueled by product innovation and research leadership, the company has all of the right tools to remain successful. However, the company has run into barriers due to the inability to implement an effective organizational structure, decision process and corporate culture to adapt to the demands of the changing environment. Philips can overcome these obstacles by focusing its efforts towards its end goal of becoming a transnational organization.Philips was founded in 1892, initially focusing on the production of light bulbs. The company became the third largest light-bulb producer by 1900. Contrary to competitors' diversification strategies, Philips first concentrated on only one product. This provided for significant innovations and allowed the company to become a leader in industrial research. While expanding worldwide, Philips evolved from a highly centralized to a decentralized organization with autonomous companies operating in various countries. Alongside territorial expansion, Philips later also broadened its product palette significantly. Early, Philips emphasized on the importance of a competitive dual leadership of commercial and technical functions. Its postwar structure was built on the strengths of national organizations (NO) that could respond to country-specific market conditions. Philips did this by adapting the products and organization to consumer preferences and economic conditions. While the formal corporate-level structure was a geographic/product matrix, the real power gradually shifted towards the NOs, mainly concentrating on their local markets.However, overtime, structural deficits began to show an inability to create innovative products in order to keep up its financial performance and global competitiveness, drawbacks of the matrix organization became apparent. With accelerating market changes, Philips recognized the need to restructure in order to cope with common economic markets, scale economies and an increased global demand. First attempts were made to rebalance the managerial relationship between the product and the country managers. Although several International Production Centers (IPCs) were eventually established, the NOs remained powerful and independent.The dual leadership was later replaced with single general managers in order to be more specific on goals and to communicate more efficiently. The product planning process was also redefined to incorporate input from the national organizations and global product divisions were enabled to make final decision making on important aspects in the long run. Sales continued to decline due to a lack of coordinated planning, causing Philips to lose its industry leadership. Its various businesses were classified as core and non-core, fourteen global divisions were merged into four, and the management board was restructured. Continued efforts to globalize...

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